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USD/CHF back on its heels after brief intraday rebound

H.S. Borji
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The US dollar edged lower against the Swiss franc on Friday, as the USDCHF continued to trade choppily after plunging to three-and-a-half year lows in the previous session.

The USDCHF rallied to an intraday high of 0.8809, as the markets digested Thursday’s shocking Swiss National Bank announcement. However, the pair would subsequently consolidate at 0.8572, declining 0.23 percent. The pair faces initial support at 0.7857 and resistance at 0.9766.

The Swiss franc soared on Thursday after the SNB unexpectedly abandoned its cap on the euro. The franc soared as much as 30 percent as a result, while the euro plummeted to multi-year lows.

The euro continued to trade lower against the franc on Friday after closing the previous session just below parity. The EURCHF declined 1.29 percent to 0.9895.

The SNB said that its cap of the euro, which was introduced in September 2011 and stipulated that one euro would buy 1.20 francs, had become increasingly expensive and was no longer justified. The SNB also cut its key interest rate to -0.75 percent from -0.25 percent, increasing the amount investors have to pay to hold on to deposits.

Investors turned their attention to economic data on Friday to gauge the prospects of the US recovery. US consumer prices continued to backtrack last month. December inflation rose at its weakest pace in more than five years, complicating the Federal Reserve’s timetable for a rate increase. The consumer price index of goods and services rose 0.8 percent in the 12 months through December, the Labor Department reported. Compared to November, consumer prices dipped 0.4 percent.

A 4.7 percent drop in energy prices drove last month’s decline. Gasoline prices fell 9.4 percent, official data showed.
So-called core prices, which exclude food and energy, were unchanged in December. Year-on-year, core CPI was 1.6 percent, down slightly from November’s 1.7 percent clip.

Separately, industrial production declined unexpectedly in December, as warmer than usual temperatures drove down demand in the utilities sector. Industrial production declined 0.1 percent last month, official data showed. However, durable goods production increased 0.2 percent as manufacturing output rose for the fourth consecutive month.

Meanwhile, US consumer confidence surged to an 11-year high in January, as plunging gas prices boosted consumers’ outlook. The Reuters/University of Michigan consumer sentiment index increased to 98.2 in January, the highest level since January 2004. That followed a final reading of 93.6 in December.

Consumer confidence appeared shaky in December, as retail sales posted their biggest drop in 11 months, the Commerce Department reported earlier this week. The report suggested consumers were spending cautiously after the holiday season, partly a reflection of stagnant wage growth. Average hourly earnings declined 0.2 percent in December, the Labor Department confirmed last week. Year-on-year, average hourly earnings increased just 1.7 percent.

Economists expect average pay to increase next year thanks to a tighter labour market. A recent survey of economists conducted by the Wall Street Journal suggests average hourly earnings growth will stand at 2.2 percent in June and 2.6 percent in December of this year.

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