- USD / CHF regained positive traction on Tuesday and gradually retreated closer to the two-month highs.
- The Fed’s aggressive turn, a rally in US bond yields, continued to prop up the USD.
- A generally positive risk tone undermined the safe-haven CHF and continued to act supportive.
The pair USD/CHF it maintained its modest intraday gains for the middle of the European session and the bulls are now expecting a sustained move above 0.9200.
Following the modest pullback the day before from the highs of more than two months, the USD / CHF pair managed to regain positive traction on Tuesday and was supported by a combination of factors. The sudden aggressive reversal by the Fed last week continued to act as a tailwind for the US dollar. Apart from this, a generally positive tone in equity markets undermined the safe-haven Swiss franc and provided a modest boost to the pair.
It’s worth remembering that the Fed surprised investors at the end of the June policy meeting and advanced its schedule for the first post-pandemic interest rate hikes. The so-called dot plot pointed to two rate increases by the end of 2023 compared to the projection by policymakers that it will not increase until 2024 at the March meeting. This, coupled with a modest rally in US Treasury yields, further extended some support to the USD.
St. Louis Fed Chairman James Bullard said Monday that the Fed should be prepared for inflation to surprise at the upper end until next year. Additionally, Fed Chairman Jerome Powell, in prepared testimony for the Congressional hearing, also highlighted the risk of rising inflationary pressures. This, in turn, pushed the benchmark 10-year US government bond yield above 1.50% on Tuesday.
Therefore, the key focus will continue to be Fed Chairman Jerome Powell’s testimony before the House Select Subcommittee on the Coronavirus Crisis. Powell’s remarks will be considered for new clues about the policy outlook and will instill some volatility in the markets. Meanwhile, on the US economic docket, featuring the second-tier releases of existing home sales and the Richmond Manufacturing Index, it could give the USD / CHF some boost.
Technical levels
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