- USD/CHF is witnessing a turnaround from the highest level since June 2020 hit on Wednesday.
- The pullback is due solely to a modest drop in the USD from a two-year high.
- The aggressive expectations of the Fed and the high yields of US bonds should limit the losses of the dollar and the pair.
The pair USD/CHF extends pullback from yearly high set earlier this Wednesday at 0.9536 and falls below the psychological level of 0.9500 during the first half of the European session. At time of writing, the pair is trading at 0.9475, down -0.50% on the day.
After hitting its highest level since June 2020, the USD/CHF pair witnessed an intraday trend reversal from the 0.9535 region and looked pressured by a modest retreat from the US dollar from a maximum of two years. The fall of the USD could be attributed solely to certain profit-taking and it is more likely to remain limited amid expectations of more aggressive monetary policy tightening by the Fed.
In fact, the markets seem convinced that the Fed would make several rate hikes of 50 basis points to limit the rise in inflation. Expectations were bolstered by aggressive comments from various FOMC members including St. Louis Fed President James Bullard, Chicago Fed President Charles Evans, and Chicago Fed President Neel Kakari. , who is one of the more moderate politicians.
This, coupled with concerns about rising inflationary pressures, pushed the 10-year US government bond yield to a level not seen since late 2018. The fundamental backdrop looks heavily tilted in favor of the USD bulls and supports the prospect of some buying at lower levels around the USD/CHF pair, warranting caution before positioning for deeper losses.
Market participants now await the US economic calendar, with the release of existing home sales figures. This, along with US bond yields, should influence USD price dynamics. Investors will take cues from broader market risk sentiment, which could boost safe haven Swiss Franc demand and provide some lift to the USD/CHF pair.
USD/CHF technical levels
Source: Fx Street
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