USD/CHF consolidates ahead of key Swiss inflation, US employment data
- USD/CHF trades sideways around 0.8040 ahead of key Swiss and US data for August.
- The Swiss inflation is expected to have remained flat again on a monthly basis.
- Soft US JOLTS Job Openings data boosted Fed dovish bets.
The USD/CHF pair trades in a tight range around 0.8040 during the Asian trading session on Thursday. The Swiss Franc pair consolidates as investors await key Swiss Consumer Price Index (CPI) and United States (US) ADP Employment and ISM Services PMI data for August.
Economists expect the Swiss inflation to have remained flat again on a monthly basis, with annual figures rising steadily by 0.2%. An absence of growth in price pressures could force Swiss National Bank (SNB) officials to push interest rates into a negative territory.
In the US, the ADP Employment Change data is seen at 65K workers, significantly lower than 104K in July. Meanwhile, the ISM Services PMI is seen at 51.0, higher than the prior release of 50.1.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gained ground after a corrective move on Wednesday to near 98.00.
The US Dollar faced a sharp selling pressure on Wednesday after weak US JOLTS Job Openings data for July. The Bureau of Labor Statistics (BLS) showed that US employers posted 7.18 million fresh jobs, lower than expectations of 7.4 million, and the prior reading of 7.36 million. Soft US job Openings data fuelled Federal Reserve (Fed) dovish bets for the September policy meeting.
According to the CME FedWatch tool, the probability for the Fed to cut interest rates in the September policy meeting has increased to 97.6% from 92% seen before the JOLTS Job Openings data release.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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