USD/CHF trades with modest losses amid weaker USD, manages to hold above 0.8900

• USD/CHF kicks off the new week on a weaker note, albeit lacks follow-through selling.
• A modest USD pullback from a multi-month top is seen exerting pressure on the major.
• Hawkish Fed expectations, elevated US bond yields limit losses for the USD and the pair.

The USD/CHF pair opens with a bearish gap on the first day of a new week, albeit manages to hold its neck above the 0.8900 mark through the Asian session. Spot prices currently trade around the 0.8910-0.8915 area, down nearly 0.20% for the day, and remain at the mercy of the US Dollar (USD) price dynamics.

Following the recent strong run-up, the USD Index (DXY), which tracks the Greenback against a basket of currencies, pulls back from a six-month high and turns out to be a key factor exerting some pressure on the USD/CHF pair. The USD downtick could be attributed to a strong pickup in demand for the Japanese Yen (JPY), bolstered by Bank of Japan (BoJ) Governor Kazuo Ueda's hawkish remarks over the weekend. That said, hawkish Federal Reserve (Fed) expectations might hold back traders from placing aggressive USD bearish bets.

Market participants seem convinced that the US central bank will keep interest rates higher for longer and have been pricing in the possibility of one more 25 bps lift-off by the end of this year. The bets were reaffirmed by The Wall Street Journal report, stating that some officials still prefer to err on the side of raising rates too much, reasoning that they can cut them later. This remains supportive of elevated US Treasury bond yields and should act as a tailwind for the buck, warranting caution before positioning for a deeper USD/CHF corrective slide.

Investors might also prefer to wait on the sidelines ahead of this week's key US macro releases – the latest consumer inflation figures on Wednesday, followed by the Producer Price Index (PPI) and Retail Sales data on Thursday. In the meantime, a generally positive tone around the equity markets could undermine the safe-haven Swiss Franc (CHF) and contribute to limiting losses for the USD/CHF pair. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out near the 0.8940-0.8945 region.

Technical levels to watch