The USD/CHF plunges in the North American session after the US Department of Labor reported that inflation in the US increased at a slower pace, which could deter the US Federal Reserve from tightening aggressively. Additionally, tensions between Taiwan and China seem to ease, exacerbating a positive mood.
At the time of writing, the USD/CHF is trading at 0.9413 after hitting a daily high in the early Asian session at 0.9542. However, upbeat US economic data tripped down the major, which dived to a multi-month low at 0.9393, before bouncing towards current prices.
The US inflation report showed that July’s Consumer Price Index, annually based, increased by 8.5%, less than estimations of an 8.7% uptick. Meanwhile, excluding volatile items like food and energy, the so-called core-CPI rose 5.9% YoY, unchanged compared to June and less than forecasts. The fall is due to gasoline prices a $1 less than in June, offsetting increases in food and shelter.
Investors reacted with a sign of relief, sending US equity markets rallying, between 1.90% and 2.60%, while the greenback fell. The US Dollar Index, a measure of the buck’s values vs. a basket of peers, is losing 1.27%, tumbling below the 105.00 mark. US bond yields in the short-end maturity are dropping, while the 20s and 30s are up.
The USD/CHF immediately reacted to the downside, breaking on its way south, the 200-day EMA at 0.9424, exacerbating a push below the 0.9400 figure. Nevertheless, in the last hour, the major recovered some ground, and once the dust settled, buyers reclaimed the latter.
Late during the session, the Chicago Fed President Charles Evans crossed newswires. Even though the CPI is the “first positive report,” inflation is unacceptably high. He added that the Fed is not done hiking rates, and he expects the Federal funds rate (FFR) to be at 3.25-3.50% by year’s end. He added that by the end of 2023, he foresees the FFR between 3.75-4.00%.
The US economic docket will feature Minnesota Fed President Neil Kashkari on Wednesday. By Thursday, the calendar will unveil prices paid by producers, also known as PPI and Initial Jobless Claims.