USD/CHF climbs to over one-week high, lacks follow-through beyond 0.9000 amid risk-off

The USD/CHF pair builds on the overnight bounce from the vicinity of the 0.8900 figure and gains strong positive traction for the second successive day on Friday. The momentum remains uninterrupted through the early European session and lifts spot prices to over a one-week high, beyond the 0.9000 psychological mark in the last hour, though lacks follow-through.

The Swiss National Bank's (SNB) decision to lift interest rates for the fifth time in succession, by 25 bps on Thursday seems to have disappointed some investors expecting a bigger increase. It is worth recalling that SNB Chairman Thomas Jordan recently showed the readiness to raise rates more aggressively, encouraging markets to price in the possibility of a 50 bps lift-off. The relatively smaller rate hike continues to undermine the Swiss Franc (CHF), which, along with the prevalent US Dollar (USD) buying, acts as a tailwind for the USD/CHF pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, builds on the recovery from its lowest level since May 11 touched the previous day and draws support from the Federal Reserve's (Fed) hawkish outlook. In fact, the Fed last week signalled that borrowing costs may still need to rise as much as 50 bps by the end of this year. Moreover, Fed Chair Jerome Powell, during his two-day congressional testimony, reiterated that the central bank will likely raise rates again this year, albeit at a "careful pace", to combat inflation.

Powell added that the Fed doesn't see rate cuts happening any time soon and is going to wait until it is confident that inflation is moving down to the 2% target. The markets were quick to react and are now pricing in a nearly 75% chance that the Fed will hike rates further in July. A stronger buck, along with some technical buying above the 50-day Simple Moving Average (SMA), remains supportive of the USD/CHF pair's intraday positive move. That said, the risk-off impulse could drive some haven flows towards the CHF and cap gains for the major.

A slew of rate hikes by major central banks this month raises concerns about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, the disappointing release of the flash Eurozone PMIs takes its toll on the global risk sentiment, which is evident from a generally weaker tone around the equity markets. This, in turn, is forcing investors to take refuge in traditional safe-haven assets and might keep a lid on the USD/CHF pair. Traders now look to the flash US PMIs for some impetus later during the early North American session.

Technical levels to watch