Swiss CPI declines in November

The Swiss franc has edged upwards on Tuesday. In the European session, USD/CHF is trading at 0.8846, down 0.21% on the day.

Is Switzerland facing deflation? Swiss CPI declined by 0.1% m/m in November, unchanged from October and in line with the market estimate. This marks the fourth successive month that inflation has failed to show a gain. On an annual basis, inflation climbed 0.7%, up from 0.6% in October but below of the market estimate of 0.8%.

SNB eyeing 50-bp cut

The inflation report comes one week before the Swiss National Bank’s meeting on Dec. 12 . The markets have priced an oversized 50-bp cut at 71%, with a 25-bp at 29%. Today’s inflation report indicates that risks are now on the lower side and the central bank is concerned about inflation moving to the lower band of the 0% to 2% target band.

The central bank has been aggressive in its easing cycle, lowering rates by 25 bp three times this year. The cash rate is currently at 1%, its lowest level in two years. The SNB is poised to cut rates next week and is likely to continue into next year.

The Federal Reserve meets on Dec. 18, its final meeting of the year. The Fed trimmed rates by 25 basis points last month and is expected to do the same at the December meeting. Fed Governor Christopher Waller said on Monday that he is leaning toward a cut in December but his decision could change if inflation surprised on the upside. The US releases November CPI one week prior to the rate announcement and the release will be a key factor as to whether the Fed cuts or maintains interest rates.

USD/CHF Technical

• USD/CHF is testing support at 0.8852. Below, there is support at 0.8814
• 0.8903 and 0.8941 are the next resistance lines

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