The USD/CHF currency pair slipped below the 0.8450 level during the early Asian session on Tuesday, as the US Dollar (USD) weakened against the Swiss Franc (CHF). The movement marks a notable pullback after the pair posted over 2% gains in the previous trading session.
This downward correction is largely viewed as a technical retracement amid upcoming US inflation data, which could reshape expectations for Federal Reserve policy in the months ahead. The article by Monovex brokers sheds valuable light on this subject through a detailed analysis.
Technical Correction in USD Leads to CHF Gains
The decline in USD/CHF reflects a broader weakening in the US Dollar Index (DXY), which currently hovers near 101.50. This drop in the dollar comes after a strong prior session and suggests a short-term technical correction rather than a reversal of trend. The pair is currently trading around 0.8430, retracing from recent highs as traders take profit ahead of key economic releases.
With the DXY under pressure, most major currencies have found support, including the Swiss Franc, which typically benefits during periods of risk aversion or dollar weakness. However, in this instance, the franc’s strength is more a consequence of dollar softness than renewed safe-haven demand.
Market Focus Turns to US CPI Data
Investor attention is squarely fixed on the upcoming US Consumer Price Index (CPI) report for April, which will be released later in the day. Consensus estimates suggest that headline CPI will rebound to 0.3% month-over-month (MoM) from the previous reading of -0.1%, reflecting renewed price pressures after a brief pause.
Meanwhile, core CPI, which excludes food and energy prices, is also forecast to increase to 0.3% MoM, up from 0.1% in March. On a year-over-year (YoY) basis, both headline and core inflation are expected to remain unchanged, suggesting persistent underlying inflationary trends that could influence Federal Reserve decision-making.
A stronger-than-expected inflation print would likely bolster the dollar by renewing hawkish policy expectations, while a softer outcome could further weigh on the greenback and extend the USD/CHF decline.
Easing Trade Tensions Reduce Demand for Safe-Haven CHF
The earlier rally in USD/CHF was fueled by a major development in US-China trade relations. Over the weekend, the two nations reached a preliminary agreement in Switzerland to substantially reduce tariffs, signaling a thaw in trade tensions. The United States agreed to reduce tariffs on Chinese goods from 145% to 30%, while China will cut its tariffs on US imports from 125% to 10%.
This move was welcomed by global markets as a risk-positive development, reducing the appeal of traditional safe-haven assets like the Swiss Franc. The Swiss currency, often sought during market turbulence, has since come under downward pressure as investors reposition toward riskier assets, including equities and emerging market currencies.
Swiss Bond Yields Rise in Line with Global Sentiment
Supporting the broader risk-on sentiment is the rise in Swiss government bond yields, which saw the 10-year yield climb to approximately 0.37%, reflecting global trends of increasing borrowing costs amid stronger risk appetite.
While this uptick in yields may offer some support to the CHF, the upside appears limited by the Swiss National Bank’s (SNB) ongoing dovish stance. Last week, SNB Chairman Thomas Schlegel reiterated the central bank’s readiness to intervene in currency markets and implement additional rate cuts if necessary. He signaled that the SNB would not hesitate to lower rates into negative territory should inflation remain subdued below target levels.
Outlook for USD/CHF Hinges on Inflation and Fed Expectations
Going forward, the trajectory of USD/CHF will largely depend on the US inflation print and its impact on Federal Reserve expectations. A hotter CPI figure could prompt markets to price in rate hikes or at least delay expectations for any monetary easing, which would lend support to the US Dollar and potentially reverse the recent dip in USD/CHF.
On the other hand, if inflation data disappoints, USD selling could accelerate, sending the USD/CHF pair further below current levels, possibly targeting the 0.8400 support zone or lower.
Conclusion
The USD/CHF pair’s drop below 0.8450 reflects a combination of technical correction in the US Dollar and cautious positioning ahead of critical US inflation data. While easing trade tensions and rising Swiss yields have added complexity to the cross’s movements, the broader narrative remains one of short-term USD weakness versus a limited CHF rebound, constrained by the SNB’s dovish stance.
Key support for the pair lies near 0.8400, while resistance is likely around 0.8500 in the near term. Traders should brace for potential volatility spikes depending on how the CPI data reshapes market expectations on interest rates and monetary policy paths in the US.
