Swiss Franc edges up from yearly lows despite tepid Economic Expectations data

USD/CHF eases to 0.8330 area from 16-month highs above 0.8350 on Tuesday.
Swiss ZEW Economic Expectations Index dropped to 2.6 in September from 12.1 in August.
The US Dollar trims gains as US yields retreat amid dovish comments by Fed's Williams.

Guillermo Alcala FXStreet

The Swiss Franc (CHF) shows a moderate recovery on Wednesday, as the US Dollar (USD) trims gains amid a slight pullback in US Treasury yields and dovish Fedspeak. The USD/CHF pair has pulled back to the 0.8330 area during the European session but remains close to the 16-month highs above 0.8350 hit on Tuesday following a lukewarm ZEW Economic Sentiment Report.

Economic expectations deteriorated in Switzerland in September, according to data released by the ZEW institute, as its monthly sentiment index fell to 2.6 from 12.1 in August. The data, however, has failed to hit the Swissie, which keeps crawling higher against the US Dollar.

US Dollar pulls back on lower yields, dovish Fed comments

The Greenback is giving away some gains as US Treasury yields retreat from long-term highs on Wednesday, with the return of the benchmark 10-year note down 8 basis points in one day but still above the key 5% level.

US Treasury yields retreated on Tuesday after the New York Federal Reserve (Fed) President, John Williams, cooled hopes of back-to-back rate hikes. Williams affirmed that “there is no rush after September’s rate hike” and that the biggest inflation shocks have largely played out.

These comments prompted investors to dial back bets of an October rate hike to a 44% chance from 70% only 24 hours ago, according to the CME FedWatch Tool, which has triggered some US Dollar profit-taking.

Investors have also grown cautious ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index, the Fed’s favourite inflation gauge, due later in the day. The market is bracing for steady headline inflation at a 3.6% yearly rate, and a similarly steady core reading, showing a 3.3% year-on-year growth.

Economic Indicator

ZEW Survey – Expectations

The ZEW Survey Expectations published by the Centre for European Economic Research presents business conditions, employment conditions and other elements affecting the day to day running of a business in Switzerland. Generally speaking, a high reading is seen as positive (or bullish) for the CHF, whereas a low reading is seen as negative (or bearish).

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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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