USD/CHF Declines Below 0.8350 on Weak US Inflation Data, SNB Dovish Sentiment Caps CHF Rally

USD/CHF Declines Below 0.8350 Amid Weak US Inflation Data, SNB Dovish Sentiment Limits CHF Rally

The USD/CHF currency pair continued its downward trajectory, reaching around 0.8340 during the early European session on Friday. This marks an extension of the losses seen earlier in the week, driven by weaker-than-expected US inflation data, which has been putting downward pressure on the US Dollar (USD).

The latest US Producer Price Index (PPI) figures revealed a rise of 2.4% year-on-year in April, below the expected 2.5% and down from 2.7% in March. Additionally, the US Consumer Price Index (CPI) for April rose by just 2.3% year-on-year, also below the anticipated 2.4%. The disappointing inflation readings are fueling concerns about slower economic growth, which in turn raises the possibility of the Federal Reserve cutting interest rates sooner than expected.

As a result of this weaker inflation outlook, market participants are now pricing in a 75.4% chance of the Fed implementing its first 25 basis point rate cut by the September meeting, based on data from LSEG. This has contributed to the weakening of the US Dollar.

Meanwhile, the Swiss Franc (CHF) is not seeing a significant rally despite the USD’s weakness. This is partly due to the dovish stance of the Swiss National Bank (SNB), which has indicated that it may not take aggressive action to further strengthen the Swiss Franc in the current environment.

In addition to the US inflation data, investors are awaiting the Swiss Producer and Import Prices report for April, scheduled for release later today. This report will provide further insight into inflation trends in Switzerland and may influence market expectations for the SNB’s policy decisions moving forward.

The current market sentiment suggests that while the USD is under pressure, the Swiss Franc may struggle to gain substantial ground due to the SNB's cautious approach. If the USD/CHF pair continues to slide, the next key support level to watch is near 0.8300, followed by the psychological level of 0.8200.