USD/CHF trades with modest gains above mid-0.8800s, weaker USD acts as a headwind

• USD/CHF turns positive for the second successive day, albeit lacks follow-through buying.
• Receding safe-haven demand undermines the CHF and lends some support to the major.
• The emergence of fresh USD selling acts as a headwind ahead of the key US NFP report.

The USD/CHF pair attracts some dip-buying near the 0.8835 region on Friday and turns positive for the second successive day, though lacks bullish conviction. The pair trades just above mid-0.8800s during the early European session and so far, is seen struggling to capitalize on the overnight bounce from its lowest level since January 2021.

A modest recovery in the US equity futures undermines the safe-haven Swiss Franc (CHF) and turns out to be a key factor acting as a tailwind for the USD/CHF pair. The upside, however, remains capped amid the emergence of fresh selling around the US Dollar (USD), led by concerns about the US banking sector and the Federal Reserve's (Fed) less hawkish outlook. Investors remain worried about a full-blown banking crisis in the US and now fear that regional lender PacWest Bancorp could be the next potential domino to fall.

The US central bank, meanwhile, outlined on Wednesday a more stringent and data-driven approach to hiking rates further. Moreover, Fed Chair Jerome Powell signalled that the central bank was close to hitting the terminal rate of the current tightening cycle. Markets took this as a sign that the central bank could eventually pause its year-long rate-hike cycle in June. This, along with the concerns over the US debt ceiling, continues to weigh on the Greenback and might keep a lid on any meaningful recovery for the USD/CHF pair.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the release of the closely-watched US monthly employment details, due later during the early North American session. The popularly known NFP report will play a key role in influencing the near-term USD price dynamics and help investors to determine the next leg of a directional move for the USD/CHF pair.

Technical levels to watch