USD/CHF consolidates around 0.7950 as investors await US inflation data

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The USD/CHF pair trades in a tight range around 0.7950 during the late Asian trading session on Thursday. The Swiss Franc pair wobbles as investors await the United States (US) inflation data for November, which will be published at 13:30 GMT.

USD/CHF trades flat around 0.7950 ahead of the US CPI data for November.
US President Trump stated that the new Fed chairman will favor lower interest rates.
Investors lack clarity on the SNB’s monetary policy outlook.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 98.45. The DXY holds onto its recovery move that triggered on Tuesday, following the release of the US Nonfarm Payrolls (NFP) combined report for October and November.

As measured by the Consumer Price Index (CPI), the headline inflation is expected to have grown at an annualized pace of 3.1%, faster than 3% in October. In the same period, the core CPI – which excludes volatile food and energy items – is estimated to have risen steadily by 3%.

Investors will pay close attention to the inflation data as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. Traders might pare Fed dovish expectations if inflation proves to be more persistent, as Fed officials have expressed concerns over inflation remaining well above the 2% target for a long period. Last week, Fed Chair Jerome Powell said in the press conference, following the interest rate decision, “Everyone at the table agrees inflation is too high.”

Going forward, the major driver for the US Dollar will be the announcement of Fed Chair Powell’s successor. Earlier in the day, US President Donald Trump stated that the next Fed chairman will be ‍someone who believes in lower interest rates "by ‌a lot”, a scenario that will be unfavourable for the US Dollar.

Meanwhile, the Swiss Franc (CHF) also trades flat amid a lack of clarity on the Swiss National Bank’s (SNB) interest rate outlook. The SNB is unlikely to shift into the negative interest rate policy as it will have an adverse impact on savers and pension funds.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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