USD/CHF drops to two-month lows, bears flirt with 0.9100 mark

• USD/CHF continued losing ground through the first half of the trading action on Friday.
• The cautious market mood benefitted the safe-haven CHF and exerted some pressure.
• An uptick in US bond yields revived the USD demand and helped limit the downside.

The USD/CHF pair dropped to two-month lows during the early European session, with bears now awaiting a sustained break below the 0.9100 round-figure mark.

The pair added to its weekly losses and remained depressed through the first half of the trading action on Friday amid a softer risk tone, which drove haven flows towards the Swiss franc. Fears about the risk of stagflation resurfaced after Thursday's dismal US GDP report, which showed that the growth in the world's largest economy decelerated sharply in the third quarter. This, in turn, weighed on investors sentiment and benefitted traditional safe-haven assets.

That said, a modest US dollar rebound from one-month lows touched on Thursday helped limit any deeper losses amid oversold RSI on hourly charts. The greenback drew some support from some follow-through uptick in the US Treasury bond yields, bolstered by expectations for an early policy tightening by the Fed. The markets have been pricing in the possibility of a potential interest rate hike in 2022 amid worries about a faster-than-expected rise in inflationary pressure.

Hence, the market focus will remain glued to Friday's release of the US Core PCE Price Index, due later during the early North American session. The data will set the tone heading into next week's FOMC meeting and provide some impetus to the USD/CHF pair. Apart from this, the US bond yields will influence the USD price dynamics, which along with the broader market risk sentiment should produce some short-term trading opportunities around the major.

Technical levels to watch