The Swiss CPI for the month of May rose 0.2% m/m, which brought the annual rate down to -1.0% y/y from -0.3% y/y in April. We had been looking for a rise of 0.3% m/m and a y/y rate of -0.9%, in line with the Reuters median, so data were largely in line with expectations. Core inflation decelerated to 0.8% y/y from 1.1%, hence remaining in the positive territory but continuing the gradual downward trend. However, the headline annual rate sunk deeper into negative territory, which backs SNB Roth’s warning that the economy is “on the edge of a deflationary development”.
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CHF traded on a softer footing, which lifted EUR/CHF to 1.5187 and kept USD/CHF supported just under the 1.0700 level. Early European sellers of CHF were noted ahead of the Swiss CPI, which rose 0.2% m/m in May and fell 1% y/y. SNB’s Hildebrand was on the wire reiterating comments from earlier on in the week, that the global economy may be near a trough and added that the financial system is showing clear signs of stabilization. He didn’t offer any direct comment on the CHF, which may encourage some supply in EUR/CHF ahead of the 1.5200 level. However, he did say that the SNB would not hesitate to follow through with far reaching monetary policy action. Movement from here will be dependent on equity markets, which have held up as the market responded to news that Rio Tinto has walked away from its deal with Chinalco. As we approach the European afternoon the dollar is likely to drive price action as the market positions for today’s U.S. NFP release.