USD/CHF eases from one-year high, downside seems cushioned amid Fed tightening fears

• USD/CHF climbed to a one-year high during the early part of trading on Tuesday.
• Softer US bond yields capped gains for the USD and prompted some profit-taking.
• Rising bets for a more aggressive Fed favour the USD bulls and should limit losses.

The USD/CHF pair surrendered its intraday gains to the highest level since April 2021 and slipped below the mid-0.9400s during the early part of the European session.

The US dollar eased a bit from a fresh two-year high touched earlier this Tuesday amid a softer tone surrounding the US Treasury bond yields. This, in turn, was seen as a key factor that failed to assist the USD/CHF pair to capitalize on its early positive move and prompted some selling near the 0.9465 area. The downside, however, seems cushioned amid expectations for a more aggressive policy tightening by the Fed.

In fact, the markets have been pricing in multiple 50 bps rate hikes by the Fed amid concerns that the worsening Ukraine crisis would put upward pressure on already high inflation. Moreover, St. Louis Fed President James Bullard said on Monday that the US central bank shouldn’t rule out rate increases of 75 bps. This should act as a tailwind for the US bond yields, which, in turn, should limit losses for the USD/CHF pair.

Apart from this, signs of stability in the equity markets could undermine the safe-haven Swiss franc and offer additional support to spot prices. Even from a technical perspective, acceptance above the 0.9410-0.9415 region favours bulls, suggesting that dips might still be seen as a buying opportunity. This makes it prudent to wait for strong follow-through selling before confirming that the USD/CHF pair has topped out.

Market participants now look forward to the US economic docket, featuring the release of Building Permits and Housing Starts later during the early North American session. This, along with a scheduled speech by Chicago Fed President Charles Evans and the US bond yields, will influence the USD price dynamics. Apart from this, the broader risk sentiment could provide some meaningful trading impetus to the USD/CHF pair.

Technical levels to watch