USD/CHF slides further below 0.9900 mark amid weaker USD, focus remains on US CPI

• USD/CHF corrected sharply on Wednesday and snapped a four-day winning streak.
• Retreating US bond yields prompted some USD profit-taking and exerted pressure.
• The risk-on mood might undermine the safe-haven CHF and limit any further losses.
• The focus remains glued to the release of the latest US consumer inflation figures.

The USD/CHF pair added to its intraday losses and dropped to a fresh daily low, around the 0.9870 area during the first half of the European session.

The pair witnessed heavy selling on Wednesday and snapped a four-day winning streak to its highest level since May 2019, around the 0.9975 touched the previous day. The ongoing retracement slide in the US Treasury bond yields forced traders to lighten their US dollar bullish bets. This, in turn, was seen as a key factor that exerted downward pressure on the USD/CHF pair.

The downside, however, seems limited amid a generally positive tone around the equity markets, which tends to undermine the safe-haven Swiss franc. Apart from this, the prospects for a more aggressive policy tightening by the Fed should help limit the downside for the buck and lend support to the USD/CHF pair, warranting caution before placing fresh bearish bets.

The Fed is widely expected to tighten its monetary policy at a faster pace to combat stubbornly high inflation. In fact, the markets are pricing in a 200 bps rate hike for the rest of 2022 amid concerns that China's zero-covid policy and the war in Ukraine would result in tight global supply chains. This could push already elevated consumer prices even higher.

Hence, the focus will remain glued to the US CPI report, due for release later during the early North American session. The data could influence the Fed's tightening path, which, in turn, would influence the near-term USD price dynamics. Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CHF pair has topped out.

Technical levels to watch