USD/CHF Sees Retracement Amidst Shifting Sentiment and Policy Expectations

The USD/CHF pair retraced recent gains observed on Friday, settling around 0.9120 during Monday’s European session. This retracement is attributed to a depreciation of the US Dollar (USD), reflecting a potential shift towards a risk-on sentiment that undermines the pair’s strength.

Market analysts anticipate that the US Federal Reserve (Fed) will maintain the current interest rate range of 5.25%–5.5% in the upcoming policy meeting on Wednesday, driven by concerns over heightened inflation. The latest annual US Core Personal Consumption Expenditures (PCE) Price Index data for March, released last Friday, showed an increase, suggesting a potential delay in rate cuts by the Fed until September. According to the CME FedWatch Tool, the probability of the Fed keeping interest rates unchanged in the June meeting has risen to 87.7%, up from 81.7% last week.

Meanwhile, on the Swiss side, discussions from the Swiss National Bank’s (SNB) General Meeting of Shareholders on Friday highlighted Chairman Thomas J. Jordan’s emphasis on closely monitoring inflation. Chairman Jordan reaffirmed the SNB’s readiness to lower interest rates further if necessary. Notably, in March, the SNB surprised markets by reducing its main policy rate by 0.25 percentage points to 1.5%.

Chairman Jordan emphasized the SNB’s effective approach in combating inflation while acknowledging persistent uncertainty and the potential for unforeseen shocks. He stressed the importance of maintaining focus on price stability and cautioned against expanding the SNB’s mandate in response to critics, deeming such calls as risky.

Investors are anticipated to closely monitor the Consumer Price Index (CPI) data scheduled for release by the Swiss Federal Statistical Office on Thursday. The CPI serves as a primary indicator for measuring inflation and changes in purchasing trends in Switzerland, providing critical insights into the economic landscape.

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