Swiss franc steady after inflation dips

• Swiss inflation lower than expected
• US markets closed on Tuesday
• Fed minutes will be released on Wednesday

The Swiss franc is showing little movement on Tuesday, trading at 0.8959 in the European session. US markets are closed for the July Fourth holiday and we can expect a quiet day for USD/CHF.

Swiss inflation falls to 1.7%

Switzerland’s inflation rate dipped in June to 1.7% y/y, down from 2.2% in May and just below the consensus of 1.8%. On a monthly basis, inflation rose 0.1%, down from 0.3% and below the consensus of 0.2%. Core inflation eased to 1.8% y/y, down from 1.9%.

Swiss National Bank President Jordan has often complained that inflation remains too high, although other central bankers, who are grappling with much higher inflation, would be happy to change places.

Both the headline and core rates have now dropped into the Bank’s target range of 0%-2%, which should lend support to the SNB taking a pause at the September meeting. However, Jordan has been quite hawkish and one positive inflation report may not be enough to convince the SNB that the decline in inflation is temporary. The markets have priced in a 66% probability of a 0.25% in September, which would bring the cash rate to an even 2.0%.

US markets are closed today, but Wednesday should be a busy session as the Fed releases the minutes from the June meeting. The markets are widely expecting a rate hike in July, and there are growing concerns that if the Fed continues to hike, the economy will tip into a recession.  The spread between 2-year and 10-year Treasury note yields deepened to a 42-year high on Monday, raising fears of a recession. A yield curve inversion is considered a reliable indication of a recession and the current inversion has been in place since July, raising fears about the direction of the US economy.

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USD/CHF Technical

• USD/CHF is testing support at 0.8961. Below, there is support at 0.8904
• 0.9009 and 0.9081 are the next resistance lines

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