USD/CHF tumbles below 0.9660 as DXY eases, Fed Powell in focus

• USD/CHF has delivered a downside break of the entire day’s consolidation at 0.9660.
• The unexpected 50 bps rate hike by the SNB has shocked the FX domain.
• A sideways move is expected in the DXY ahead of Fed Powell.

The USD/CHF pair has slipped below 0.9660 as the US dollar index (DXY) has surrendered its recovered gains and is declining towards an intraday low at 104.23. The asset has auctioned in a narrow range of 0.9657-0.9679 in the Asian session and now a downside break looks imminent. On a broader note, the asset has turned balanced in a 0.9620-0.9724 range from the past three trading sessions after displaying a vertical downside move from Wednesday’s high at 1.0045.

An unexpected move of elevating interest rates by 50 basis points (bps) from the Swiss National Bank (SNB) has shocked the FX domain. Last week, SNB Governor Chris Jordan was expected to dictate its usual neutral stance on the interest rates. However, a rate hike announcement and that too by 50 bps results in an extreme sell-off in the asset.  This cleared that the Swiss franc is no more overvalued and is not going to tackle the greenback with bare hands.

Officially, the SNB’s interest rate has elevated to -0.25% after a 50 bps rate hike. Considering the runaway inflation in the global markets, the Swiss economy could witness some consequences in the later stages. Therefore, a gradual tightening move seems lucrative for the economy and for the currency.

The DXY is on the verge of violating Monday’s low at 104.23 as a rebound in the risk-on impulse has diminished the safe-haven’s appeal. A decisive move by the DXY will be taken after the release of the Federal Reserve (Fed) chair Jerome Powell’s testimony, which will guide the FX domain above the likely monetary policy action in July.