USD/CHF trades with modest gains around 0.8700, just below over two-week high set on Friday

• USD/CHF edges higher on Monday and draws support from a combination of factors.
• The risk-on mood undermines the safe-haven CHF and acts as a tailwind for the major.
• The USD holds steady just below the multi-week high and also lends support to the pair.

The USD/CHF pair attracts some dip-buying near the 0.8675-0.8670 area on the first day of a new week and moves back closer to over a two-week high touched on Friday. Spot prices currently trade around the 0.8700 round-figure mark and look to build on last week's goodish rebound from mid-0.8500s, or a fresh low since January 2015.

The prevalent risk-on environment - as depicted by a generally positive tone around the equity markets - is seen undermining the safe-haven Swiss Franc (CHF) and acting as a tailwind for the USD/CHF pair. The US Dollar (USD), on the other hand, holds steady just below a nearly three-week high and remains well supported by elevated US Treasury bond yields, bolstered by prospects for further policy tightening by the Federal Reserve (Fed).

It is worth recalling that Fed Chair Jerome Powell had said last week that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target. Moroever, the US GDP report pointed to an extremely resilient economy and kept the door for one more 25 bps rate-hike in September or November wide open. This, to a larger extent, overshadows signs of receding underlying price pressures in the US.

In fact, the US Bureau of Economic Analysis reported that the PCE Price Index rose 0.2% last month and advanced 3.0% over the twelve months through June, registering its smallest gains since March 2021. Excluding the volatile food and energy components, the Core PCE Price Index came in at 4.1% YoY rate - the smallest increase since September 2021. This could force the Fed to end its fastest rate-hiking cycle since the 1980s and cap the USD.

The aforementioned fundamental backdrop, meanwhile, seems tilted in favour of the USD bulls and supports prospects for some meaningful near-term appreciating move for the USD/CHF pair. Traders, however, might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of this week's important US macro releases scheduled at the beginning of a new month, including the closely-watched NFP report on Friday.

Technical levels to watch