USD/CHF climbs to fresh multi-week peak, around 0.9920 area amid sustained USD buying

The USD/CHF pair prolonged its recent strong move up witnessed over the past one-and-half-week or so and gained traction for the seventh successive day on Monday. The momentum lifted spot prices to a near four-week high, around the 0.9920-0.9925 region during the first half of the European session.

Stronger US consumer inflation figures released on Friday lifted bets that the Federal Reserve will get more aggressive to cool price pressures. In fact, the markets are now pricing in about 215 bps of cumulative hikes in 2022 and Fed funds futures reflect rising odds of a 75 bps rate hike by July. This, in turn, acted as a tailwind for the US dollar, which, in turn, continued lending support to the USD/CHF pair.

The prospects for a faster policy tightening by the Fed lifted the 2-year US Treasury note - seen as a proxy for the Fed's policy rate - to 3% for the first time since 2008. Investors also remain concerned that global supply chain disruptions caused by the Russia-Ukraine war and the COVID-19 outbreak in China would push consumer prices even higher. This, in turn, lifted the yield on the benchmark 10-year US government bond to its highest since May 9 and was seen as another factor that extended support to the greenback.

That said, the prevalent risk-off environment could benefit the safe-haven Swiss franc and keep a lid on any further gains for the USD/CHF pair, at least for now. The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting global economic growth. Investors also seemed reluctant to place aggressive bets ahead of the key central bank event risks.

The highly-anticipated outcome of a two-day FOMC meeting is scheduled to be announced on Wednesday. This will be followed by the Swiss National Bank meeting on Thursday, which should help determine the next leg of a directional move for the USD/CHF pair. In the meantime, the US bond yields will influence the USD price dynamics, which, along with the broader market risk sentiment, might provide some impetus to the major.

Technical levels to watch