- USD/CHF witnessed strong selling on Tuesday and fell to a nearly two-week low.
- The dollar’s ongoing pullback from a two-decade high continued to put pressure.
- Rises in US bond yields and risk-on momentum could help limit losses.
The pair USD/CHF found a fresh bid near the 0.9785 area on Tuesday and extended its corrective decline from a multi-week high touched last Thursday. Intraday selling picked up during the European session and dragged prices below 0.9700, a near two-week low.
The dollar continued profit-taking from two-decade highs amid bets on a massive 100 basis point rate hike by the Federal Reserve in July. In fact, several members of the FOMC they declared last week that they were not in favor of a higher rate hike than markets expected after the release of red-hot US consumer inflation.
The dollar came under further pressure from the strong rebound in demand for the euro, reinforced by reports that the European Central Bank (ECB) will debate whether to raise rates by 25 or 50 basis points at its meeting on Thursday. This, in turn, continued to put downward pressure on the USD/CHF pair, although a combination of factors could help limit any further losses.
The risk-on momentum, reflected in a generally positive tone in equity markets, could undermine the safe-haven Swiss franc and offer some support to the USD/CHF pair. In addition, investors seem convinced that the recent increase in consumer inflation in the US, which has reached the highest level in the last four decades, will force the fed to apply a higher rise in interest rates throughout the year.
Speculation continued to support elevated US Treasury yields, which should act as a tailwind for the dollar. The fundamental background supports the prospects for some buying around the USD/CHF pair, warranting some caution for the bears and before positioning for any further downside moves.
Traders now await US housing market data (building permits and housing starts) due later in the first half of the North American session. This, along with US bond yields, could weigh on the dollar.
Technical levels
Source: Fx Street
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