USD/CHF recovers further from over two-year low, trades above 0.8900 ahead of US GDP

• USD/CHF attracts some buyers on Thursday and draws support from a combination of factors.
• A positive risk tone undermines the safe-haven CHF and lends support amid a modest USD uptick.
• Investors now look forward to the Advance US Q1 GDP report to grab short-term opportunities.

The USD/CHF pair gains some positive traction on Thursday and builds on the previous day's late recovery from the vicinity of mid-0.8800s, or its lowest level since January 2021. The pair sticks to its positive bias through the first half of the European session and is currently placed near the weekly high, around the 0.8930-0.8935 region.

A modest recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - undermines the safe-haven Swiss Franc (CHF) and acts as a tailwind for the USD/CHF pair. The US Dollar, on the other hand, draws support from a further rise in the US Treasury bond yields, bolstered by bets for another 25 bps Fed rate-hike in May, and turns out to be another factor lending some support to the major.

That said, fresh concerns about banking contagion risks in the US, along with the debt ceiling standoff and looming recession risks, have been fueling speculations about an imminent rate cut by the Fed later this year. This might hold back the USD bulls from placing aggressive bets and keep a lid on any meaningful upside for the USD/CHF pair. Traders also seem reluctant ahead of the release of the Advance US Q1 GDP report.

The first estimate is anticipated to show that growth in the world's largest economy decelerated to a 2.0% annualized pace during the January-March period from the 2.6% recorded in the previous quarter. Any significant divergence from the expected reading could infuse some volatility around the USD and provide some impetus to the USD/CHF pair. Apart from this, the broader risk sentiment could produce short-term opportunities.

The market focus will then shift to the Fed's preferred inflation gauge - the US Core PCE Price Index - due on Friday, which will play a key role in influencing the USD price dynamics and help determine the near-term trajectory for the USD/CHF pair. This makes it prudent to wait for strong follow-through buying before confirming that spot prices have formed a bottom around the 0.8850 region and positioning for any further gains.

Technical levels to watch