USD/CHF pares Fed-led gains around 0.9650, SNB’s exit from negative rates eyed

USD/CHF grinds lower as sellers flirt with the 0.9650 level heading into Thursday’s European session, after snapping a two-day downtrend the previous day. In doing so, the Swiss currency (CHF) pair traders brace for the Swiss National Bank’s (SNB) monetary policy announcement while paring the Fed-linked gains.

SNB is up for quitting the negative rates with its 75 basis points (bps) of a rate hike, which in turn might ease the CHF’s safe-haven demand. However, a stronger rate move and Switzerland’s heavy reserves could keep the market’s favor for the Swiss currency intact.

That said, the US Federal Reserve (Fed) announced 75 basis points (bps) of a rate hike, the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labor market. Fed Chairman Jerome Powell also signaled that the way to tame inflation isn’t painless ahead. Following the Fed’s widely anticipated hawkish move, the US Dollar Index (DXY) refreshed its 20-year high.

In addition to the Fed-linked moves, the risk-negative headlines from Russia and China also propel the USD/CHF buyers. Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and the supply-crunch woes. In a reaction, Ukrainian President Volodymyr Zelensky said Ukrainian neutrality is out of the question and he rules out that a settlement can happen on a different basis than the Ukrainian peace formula. On the same line were the comments from the Group of Seven (G7) leaders who confirmed cooperation on support for Ukraine. Furthermore, Goldman Sachs revised China’s GDP forecasts amid fresh covid woes, which in turn adds strength to the risk-off mood.

Amid these plays, the US 10-year Treasury yields bounce back towards the 11-year high marked the previous day, up three basis points (bps) near 3.55% whereas the 2-year counterpart rises 0.75% intraday to 4.085% at the latest, near the highest levels in 15 years. Also, the S&P 500 Futures refresh a two-month low of around 3,770, down 0.70% intraday by the press time.

Looking forward, risk catalysts and the SNB moves are crucial for the USD/CHF pair traders to watch for fresh impulse. The bears, however, have less to cheer than the bulls.

Technical analysis

A daily closing beyond the 100-DMA hurdle surrounding 0.9685 becomes necessary for the USD/CHF bulls to keep reins. Otherwise, a pullback move towards revisiting the 200-DMA support near 0.9490 can’t be ruled out.