USD/CHF steadily moves back closer to a two-month high touched on Thursday

• A combination of supporting factors assisted USD/CHF to regain traction on Friday.
• Expectations for a faster policy tightening by the Fed continued to benefit the USD.
• The risk-on impulse undermined the safe-haven CHF and provided an additional lift.

The USD/CHF pair caught some bids during the early European session and climbed to a fresh daily high, around the 0.9320 region in the last hour.

Following the overnight late pullback from a two-month high, the USD/CHF pair attracted some dip-buying on Friday and scaled higher for the fifth successive day. A recovery in the global risk sentiment – as depicted by a generally positive tone around the equity markets – undermined the safe-haven Swiss franc. This, along with the prevalent strong bullish sentiment surrounding the US dollar, acted as a tailwind for the major.

The Fed on Wednesday indicated that it could raise interest rates at a faster pace than anticipated to contain stubbornly high inflation. The market was quick to start pricing in the possibility of five quarter-point rate hikes by the end of 2022. Moreover, short-term interest rate futures imply a 20% risk that the first hike in March could be 50 basis points. This, in turn, pushed the USD Index to the highest level since July 2020.

From a technical perspective, Thursday's convincing breakthrough the 0.9265-0.9270 resistance zone was seen as a fresh trigger for bullish traders. A subsequent strength and acceptance above the 0.9300 mark adds credence to the outlook and supports prospects for an extension of this week's strong rally from the 0.9100 mark. Hence, a move towards November 2021 swing high, around the 0.9375 area, remains a distinct possibility.

Market participants now look forward to the US macro data – the Core Personal Consumption Expenditure Price Index and revised Michigan Consumer Sentiment Index for January. This, along with the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment would provide some impetus to the USD/CHF pair.

Technical levels to watch