USD/CHF knocked back to 0.9200 from 0.9240ish highs as US consumer confidence tumbles to 11 year lows

• USD/CHF has fallen back to the 0.9200 level in recent trade following downbeat US consumer confidence numbers.
• But the US data this week will have the Fed worried about inflation and the appropriateness of their ultra-dovish stance.
• If any hawkish shift is forthcoming, that could propel USD/CHF back towards the September highs around 0.9350.

USD/CHF is set to end Friday’s session flat slightly to the north of the 0.9200 level. The pair had at one point been nearly as high as 0.9240, but a sharp, surprise deterioration in Consumer Confidence in November according to the University of Michigan’s preliminary survey pushed the pair from highs and back towards 0.9200. For reference, the headline consumer sentiment index dropped to an 11 year low at 66.8 versus forecasts for a small rise to 72.4 from 71.7 in October.

But the deterioration in consumer sentiment will not leave the Fed feeling vindicated in its stance that it should remain patient and only normalise monetary policy slowly, as the primary factor driving sentiment lower was concerns about inflation. If anything then, the report ought to put more pressure on the Fed to feel as though it should withdraw monetary stimulus at a faster rate. It is perplexing then that broad USD weakness was seen in response, especially given that JOLTs Job Opening data released at the same time also showed the number of job openings in the US economy exceeding the number of unemployed persons by a record 2.8M (and the quit rate hit a record high at 3.0%). The strong jobs data, which signifies that wage growth should remain elevated for the foreseeable future (which is very inflationary), comes after the YoY rate of US Consumer Price Inflation in October was revealed on Wednesday to have hit its highest level since 1990 at 6.2%.

Thus, pressure is building on the Fed to adopt a more hawkish policy stance. NY Fed President and Fed Board of Governors member John Williams had an opportunity to make such a signal on Friday but opted not to say anything of interest on policy. Core Fed members would likely rather wait until they could discuss the best course of action; whether they should shift in a hawkish direction as many market participants are calling for and, if so, to then decide upon new policy guidance and a strategy to save face as much as possible.

Back to USD/CHF; if the Fed is feeling the pressure to turn more hawkish in the coming days/weeks, then this is likely to keep the upwards pressure on USD/CHF. While some further profit-taking following the dollar’s advances this week might see the pair slip under 0.9200 next week, it is likely to remain a buy on dips. A gradual move back towards the late September highs in the 0.9350 area seems likely as long as front-end (and belly) US yields can maintain recent upwards momentum.