USD/CHF recovers early lost ground, hovers near multi-week high ahead of Powell

• USD/CHF attracted some dip-buying on Tuesday and inched back closer to a multi-week high.
• Hawkish Fed expectations acted as a tailwind for the USD and extended support to the pair.
• Retreating US bond yields capped the USD and the major ahead of Powell’s Senate hearing.

The USD/CHF pair has managed to recover its early lost ground and was last seen trading around the 0.9265-70 region, just a few pips below a four-week high touched on Monday.

A combination of factors assisted the USD/CHF pair to attract some dip-buying near the 0.9240 region on Tuesday, with bulls now looking to build on its recent gains recorded over the past two weeks. The US dollar reversed modest intraday losses amid the prospects for a faster policy tightening by the Fed. Apart from this, a generally positive risk tone undermined the safe-haven Swiss franc and acted as a tailwind for the major.

It is worth mentioning that the money markets have fully priced in the possibility of an eventual Fed lift-off in March and anticipate four interest rate hikes in 2022. Atlanta Federal Reserve President Raphael Bostic reinforced market bets and said that March would be a reasonable time for the first-rate increase. Bostic expects three rate hikes in 2022, with risks pointing towards a fourth on the possibility of higher inflation.

That said, the ongoing retracement slide in the US Treasury bond yields held back the USD bulls from placing aggressive bets and capped the upside for the USD/CHF pair. Investors also seemed reluctant ahead of Fed Chair Jerome Powell's confirmation hearing before the Senate Banking Committee later during the North American session. Powell's remarks will be closely for clues about the likely timing and the pace of policy normalisation.

Apart from this, investors will take cues from the release of the latest US consumer inflation figures on Wednesday. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the USD/CHF pair. In the meantime, the US bond yields will drive the USD demand, which along with the broader market risk sentiment should allow traders to grab some short-term opportunities around the major.

Technical levels to watch