- USD/CHF is expected to extend the downside to near 0.8900 amid weak appeal for the USD Index as safe-haven.
- A consecutive 25 bps interest rate hike is expected to be followed by neutral guidance from the Fed.
- US yields are under immense pressure after Treasury estimated that it would be out of funds for payments by early June.
The USD/CHF pair is struggling to defend the immediate support of 0.8920 in the early Asian session. The Swiss franc asset has faced immense selling pressure after a perpendicular dive in the US Dollar Index (DXY). The major is expected to decline further towards the round-level support of 0.8900 as debt-ceiling concerns have faded the appeal of the USD Index as safe-haven.
S&P500 futures are subdued in Asia after a bearish Tuesday. Investors dumped United States equities amid uncertainty over the interest rate policy of the Federal Reserve (Fed). Also, the market mood is quite risk averse as a raise in the debt ceiling will impact the long-term outlook of the US economy.
The US Treasury yields are under immense pressure after US Treasury Secretary Janet Yellen estimated that Treasury would be out of funds for payments by early June. Concerns over the debt ceiling stemmed after US President Joe Biden showed reluctance in meeting with US Senate McCarthy as House Republicans demanded big cuts in the President’s spending initiatives against the raising of the debt ceiling. At the time of writing, the 10-year US Treasury yields have dropped to near 3.43%.
As per the CME Fedwatch tool, Fed chair Jerome Powell is expected to raise interest rates by 25 basis points (bps) to 5.00-5.25%. A consecutive 25 bps interest rate hike is expected to be followed by neutral guidance as US Manufacturing PMI is consistently showing contraction, the growth rate has slowed down, and labor market conditions are losing resilience.
On the Swiss franc front, Friday’s inflation data (April) will be keenly watched. The monthly Consumer Price Index (CPI) is expected to accelerate by 0.5% at a higher pace than the prior recording of 0.2%. While annual CPI is expected to soften to 2.8% vs. the prior release of 2.9%.
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The USD/CHF currency pair has dropped towards 0.8900 on hope that the Federal Reserve’s (Fed) policy guidance will remain neutral.
The static sentiment comes as US core inflation readings exceeded analysts’ expectations in December. This has temporarily relegated the possibility of near-term easing from the Fed and shifted the risk-on sentiment back to the markets.
A more extended risk-on sentiment has hurt the CHF as investors move money into riskier assets, eroding the currency’s safe-haven premium. This has contributed to the pair’s descent towards 0.8900 while maintaining the bearish momentum after breaking below the November 2019 high of 0.9140.
The USD/CHF pair will continue to experience volatile market movements as Fed chair Jerome Powell and his team discuss the US economy while downplaying the risks of the coronavirus pandemic. As such, traders should remain mindful of potential market volatility as the markets await more information.
Overall, the USD/CHF currency pair is likely to remain weak until there is clarity over the Fed’s future policy plans. For now, it appears that the pair is poised to remain range-bound along the 0.8800 to 0.9000 support-resistance zone.