USD/CHF clings to gains near 0.9970

• A nice pickup in dollar demand helped USD/CHF regain positive traction on Wednesday.
• Aggressive bets on Fed rate hikes and rising US bond yields acted as a tailwind for the dollar and the pair.
• A weaker risk tone underpinned the safe-haven CHF and kept any significant upside limited.

The pair USD/CHF it attracted new buying on Wednesday and reversed much of the overnight drop to a four-day low. The pair maintained its offered tone heading into the American session and was last seen trading around the 0.9970-0.9965 area, just a few pips below the daily high.

Fed Chairman Jerome Powell struck a more aggressive tone on Tuesday, reaffirming market bets on a more aggressive tightening of Fed policy. Speaking at a Wall Street Journal event, Powell reiterated that he will support interest rate hikes until prices begin to fall towards a healthy level. This, in turn, pushed the benchmark 10-year US government bond yield closer to the 3.0% level, which helped rekindle demand for US dollars and helped the USD/CHF pair regain positive traction.

However, the further decline in equity markets prompted some safe-haven flows into the Swiss franc and prevented the bulls from making aggressive bets. Concerns that the war between Russia and Ukraine and the latest COVID-19 lockdowns in China will affect global economic growth continued to weigh on investor sentiment. This makes it prudent to wait for strong follow-on buying before confirming that the recent pullback from the two-year high has run its course and placing further bullish bets.

US housing market data will be released next: building permits and housing starts. In addition, US bond yields will influence the dynamics of the dollar price and give some momentum to the USD/CHF pair. Traders will follow signals from broader market risk sentiment to take advantage of short-term opportunities.

Technical levels