The USD/CHF dipped slightly on Friday, effectively losing all the gains made earlier in the week. This shift comes as the US dollar weakened following the latest personal consumption expenditure (PCE) data from the United States. The report suggested that underlying inflation is still relatively mild.
As of now, the trading pair sits at approximately 0.8071, marking a continued decline for the second consecutive day after peaking at an 11-month high of 0.8139 on Wednesday.
Recent data indicated that the headline PCE increased by 0.4% month-over-month in May, which is the same as in April but falls short of the expected 0.5%. Meanwhile, core PCE held steady at 0.3%, in line with what analysts anticipated.
The US Dollar Index (DXY), which measures the dollar’s performance against six major currencies, is around 101.12. Earlier this week, it reached a high not seen in over a year, approximately 101.80.
This data seems to lessen the expectations that a rate hike from the Federal Reserve is on the immediate horizon. Yet, annual inflation still significantly exceeds the central bank’s target of 2%, and market participants believe rates will stay steady for the next few months, while a possible increase might occur later in the year.
Chicago Fed President Austan Goolsby stated on Thursday that core inflation remains “far too high” and is “moving in the wrong direction.” Similarly, New York Fed President William Williams emphasized the need for the Fed to achieve its targeted inflation rate of 2%.
A recent Reuters survey revealed that 78 out of 102 economists predict the Fed will maintain interest rates within the range of 3.50% to 3.75% until the end of 2026.
On the Swiss front, the Swiss National Bank (SNB) is sticking to a stable monetary policy, keeping its policy rate at 0% as inflation hovers near the lower boundary of the 0-2% price stability range set by the central bank.
The International Monetary Fund (IMF) mentioned on Thursday that while the current monetary stance is suitable, the high level of uncertainty warrants remaining flexible with rate adjustments in either direction. They cautioned that higher interest rates might be needed in a stagflation scenario linked to a sharp and prolonged increase in energy prices. Additionally, the IMF noted that in the case of severe disinflationary demand shocks, negative interest rates could be one of the SNB’s most effective policy tools, albeit with potential distortions in the financial system.
