USD/CHF remains on the defensive amid softer USD, holds above parity mark

• USD/CHF edges lower on Monday and is pressured by a modest USD weakness.
• Retreating US bond yields turns out to be a key factor weighing on the greenback.
• Aggressive Fed rate hike bets should help limit losses for the buck and lend support.

The USD/CHF pair kicks off the new week on a softer note and reverses a major part of Friday's positive move back closer to its highest level since May 2019. The pair remains on the defensive through the early European session and is currently trading around the 1.0020-1.0025 region.

A modest pullback in the US Treasury bond yields prompts some selling around the US dollar on Monday, which, in turn, is seen exerting downward pressure on the USD/CHF pair. That said, expectations for a more aggressive policy tightening by the Fed should act as a tailwind for the US bond yields and the greenback.

Investors seem convinced that the US central bank will continue to hike interest rates at a faster pace to curb inflation and anticipate another supersized 75 bps increase in November. Apart from this, a positive risk tone undermines the safe-haven Swiss franc and should help limit the downside for the USD/CHF pair.

The global risk sentiment got a boost amid reports that the UK government is preparing for a major U-turn on planned tax cuts. That said, concerns about the potential economic fallout from China's zero-COVID policy, along with geopolitical risks, have been fueling recession fears and capping any optimism in the markets.

The mixed fundamental backdrop warrants caution before positioning for a firm intraday direction. Traders now look forward to the US economic docket, featuring the release of the Empire State Manufacturing Index. This, along with the US bond yields, might influence the USD and provide some impetus to the USD/CHF pair.

Technical levels to watch