USD/CHF hangs near one-month low, just above 0.8900 amid subdued USD demand

• USD/CHF consolidates its recent slump to over a one-month low.
• The USD languishes near a five-week low and acts as a headwind.
• A positive risk tone undermines the CHF and lends some support.

The USD/CHF pair oscillates in a narrow trading band through the Asian session on Friday and consolidates its heavy losses recorded over the past three days. The pair, so far, has managed to defend and hold above the 0.8900 mark, or over a one-month low touched the previous day, though any meaningful recovery still seems elusive.

The US Dollar (USD) struggles to attract any buyers and languished near a five-week low, which, in turn, is seen as a key factor acting as a headwind for the USD/CHF pair. Despite the Federal Reserve's (Fed) hawkish outlook, investors seem convinced that the US central bank is nearing the end of its year-long rate-hiking cycle. This was reinforced by the overnight slump in the US treasury bond yields, which, along with the post-ECB surge in the shared currency, keep the USD depressed near a five-week low and acts as a headwind for the USD/CHF pair.

It is worth recalling that the US central bank decided to leave interest rates unchanged at the end of a two-day policy meeting on Wednesday, though signalled that borrowing costs may still need to rise by as much as 50 bps by the end of this year. In fact, the so-called "dot plot" indicated that officials now see rates peaking at 5.6% this year, higher than March's projection of 5.1%. Apart from this, the Fed expects slightly stronger growth and forecasts the economy to expand by 1% this year — up from the 0.4% rise projected in May — before rising 1.1% in 2024 and 1.8% in 2025.

This, in turn, is holding back traders from placing fresh bearish bets around the USD. Furthermore, a generally positive tone around the equity markets undermines the safe-haven Swiss Franc (CHF) and contributes to limiting the downside for the USD/CHF pair, at least for the time being. Any meaningful recovery, however, still seems elusive, warranting some caution for aggressive bullish traders in the absence of any relevant market moving economic releases from the US. Nevertheless, spot prices remain on track to end deep in the red for the second successive week.

Technical levels to watch