Swiss Franc edges up from lows against the US Dollar with US Retail Sales on tap

USD/CHF reaches session lows just below 0.8130 after pulling back from the 0.8150 area.
Benign US inflation data has dampened hopes of a September Fed rate hike, adding pressure on the US Dollar.

Guillermo Alcala FXStreet

The Swiss Franc (CHF) picks up from two-week lows as the US Dollar (USD) struggles with markets cutting back bets of a Federal Reserve (Fed) interest rate hike in September. The USD/CHF pair drifts to session lows below 0.8125 heading into the release of July’s US Retail Sales and Michigan Consumer Sentiment Index figures, following rejection from 0.8150 on Thursday.

Investors' focus is now on the US Retail Sales release, which is expected to show a 0.1% uptick in July, following a 0.2% increase in June, and the University of Michigan Consumer Sentiment survey, which is forecast little changed in August.

Dollar rally fades as Fed hike bets recede

Analysts at DBS Group Research observe that the earlier “USD rally that dominated after Operation Epic Fury appeared to be giving way to broad-based stabilization and notable recoveries by selected currencies.”

According to DBS, this shift in FX dynamics is occurring “against this background” of changing US policy expectations, with “expectations for a September Fed hike” having “receded significantly, also due to the market’s disappointment with Fed Chairman Kevin Warsh’s fixation on ending forward guidance.”

Data released earlier this week showed that US producer prices eased beyond expectations while the Consumer Price Index (CPI) moderated in July. These figures follow an unexpected contraction in employment, altogether prompting futures markets to slash Fed tightening bets. Futures markets are pricing a 30% chance of a 25 basis point hike next month, down from 67% two weeks ago.

The Swiss Franc, on the other hand, remains weighed by a wide interest rate gap between the Fed and the Swiss National Bank (SNB) interest rates, which is fuelling carry trades. Analysts at OCBC expect the SNB to keep policy rates at zero for the rest of the year, "reinforcing the outlook for continued CHF softness,” Growth signals remain mixed as “strength in the pharmaceutical sector contrasts with softer industrial activity and weaker consumer-facing earnings, offering little justification for a more hawkish policy stance,” say the OCBC analysts in a note.

Economic Indicator

Retail Sales (MoM)

The Retail Sales data, released by the US Census Bureau on a monthly basis, measures the value in total receipts of retail and food stores in the United States. Monthly percent changes reflect the rate of changes in such sales. A stratified random sampling method is used to select approximately 4,800 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms across the country. The data is adjusted for seasonal variations as well as holiday and trading-day differences, but not for price changes. Retail Sales data is widely followed as an indicator of consumer spending, which is a major driver of the US economy. Generally, 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?

Retail Sales data published by the US Census Bureau is a leading indicator that gives important information about consumer spending, which has a significant impact on the GDP. Although strong sales figures are likely to boost the USD, external factors, such as weather conditions, could distort the data and paint a misleading picture. In addition to the headline data, changes in the Retail Sales Control Group could trigger a market reaction as it is used to prepare the estimates of Personal Consumption Expenditures for most goods.

Economic Indicator

Michigan Consumer Sentiment Index

The Michigan Consumer Sentiment Index, released on a monthly basis by the University of Michigan, is a survey gauging sentiment among consumers in the United States. The questions cover three broad areas: personal finances, business conditions and buying conditions. The data shows a picture of whether or not consumers are willing to spend money, a key factor as consumer spending is a major driver of the US economy. The University of Michigan survey has proven to be an accurate indicator of the future course of the US economy. The survey publishes a preliminary, mid-month reading and a final print at the end of the month. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

Consumer exuberance can translate into greater spending and faster economic growth, implying a stronger labor market and a potential pick-up in inflation, helping turn the Fed hawkish. This survey’s popularity among analysts (mentioned more frequently than CB Consumer Confidence) is justified because the data here includes interviews conducted up to a day or two before the official release, making it a timely measure of consumer mood, but foremost because it gauges consumer attitudes on financial and income situations. Actual figures beating consensus tend to be USD bullish.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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