USD/CHF faces barricades around 0.9650 amid subdued DXY, Fed policy eyed

• USD/CHF has sensed selling pressure around 0.9650 as the US warns of involvement if China strikes Taiwan.
• The DXY is expected to display weakness below 109.46 as US growth prospects have trimmed.
• Swiss Trade Balance data is seen higher at 3,717M vs. the prior release of 3,585M.

The USD/CHF pair has sensed selling interest while attempting to cross the immediate hurdle of 0.9650 in the early Tokyo session. Earlier, the asset displayed a sheer reversal after hitting a low of 0.9560 but is now witnessing a momentum loss as investors have shifted to the sidelines ahead of the monetary policy meeting by the Federal Reserve (Fed).

As price pressures in the US economy have rebounded again after a deliberate decline, troubles for the Fed policymakers have accelerated. The already laborious job of Fed policymakers is expected to worsen further in dealing with the inflation chaos. The core inflation is not responding effectively to the current pace of hiking interest rates, therefore, the Fed is highly needed to come forward with constructive ideas or to hike interest rates faster than the current pace. This has opened room for a full percent rate hike to cool off the red-hot inflation.

Meanwhile, the risk profile in the market is expected to remain sour as US President Biden says the US military would defend Taiwan in the event of an invasion by China. Even an intention of a cold war between the world’s two largest economies is sufficient to trigger negative market sentiment.

The US dollar index (DXY) is expected to display weakness after dropping below the critical support of 109.46. Economists at Goldman Sachs have trimmed the US growth projections significantly. The US GDP rate for 2023 is seen lower at 1.1% against the prior forecasts of 1.5%. This is the outcome of higher interest rate projections to bring price stability.

On the Swiss franc front, Swiss Trade Balance data will hog the limelight. As per the consensus, the trade activities in the Swiss economy have improved to 3,717M vs. the prior release of 3,585M. This will improve bias for the Swiss franc bulls against the greenback.