USD: Greenback on Front Foot As Fed Decision Approaches

USDCHF exhibited sharp weakness late last week, as greenback sentiment was driven by softer US PPI details & weak retail sales data, and the Swiss Franc was bolstered by stronger-than expected January core CPI figures. USDCHF has been consolidating the break of its 50-day EMA, an average that provided significant support since the US election.

• Swiss Q4 GDP growth came in above expectations this morning, bolstering the renewed CHF optimism, alongside indications that long USDCHF positions have recently been trimmed, according to latest CFTC data.
• Broader dollar optimism has been waning in recent sessions, with tariff announcements being viewed rather as a negotiating tool and potentially questioning the pre-election pledges of the Trump administration. Furthermore, Ukraine peace talks starting to take shape have helped major equity indices maintain their elevated levels, providing an additional headwind for the USD.
• The bearish threat for USDCHF remains evident, and further weakness would initially target 0.8965, the January low. A break would open a cluster of lows around 0.8920 seen last December. Initial resistance is now seen at 0.9065, the 20-day EMA.

• At the end of the first day, books on the retail-only Feb-33 BTP Piu transaction (ISIN: IT0005634792) were E5.6bln according to Reuters reporting of Bourse data.
• For comparison, first day sales for the March 2024 6-year BTP Valore launch were E6.44bln (35% of the eventual E18.3bln raised). Meanwhile, sales for the May 2024 6-year BTP Valore launch were E3.70bln (33% of the eventual E11.2bln raised).
• Assuming day 1 sales make up ~34% of the total BTP Piu issuance, this suggests E16.5bln will be raised across the week.
• The BTP Piu will form part of the BTP Valore family and will include an option for an early redemption after 4 years as well as a step-up coupon. The minimum coupon rates are 2.80% for years 1-4 and 3.60% for years 5-8.
• Unless there is an early close, books for the BTP Piu will close on Friday at 1300CET.

• ECB’s Holzmann, a pre-eminent hawk and with a voting role at the March meeting, has been reported on newswires as saying there’s “some” probability of a March rate cut.
• “Some” is at odds with the market where OIS has another 25bp cut as 98% priced.
• He goes on to add that decisions in favor of more cuts are “getting harder”.
• His comments are the closest to pushback on this market pricing ahead of the March decision just over 2 weeks away.
• See our weekly summary of ECB Speak published earlier today: https://media.marketnews.com/250217_Weekly_ECB_Speak_Wrap_3f23c8ea91.pdf