The USD/CHF pair remained on the defensive through the early part of the European session and was last seen hovering near two-day lows, around the 0.9265-60 region. The pair extended the previous day's modest pullback from the top end of its weekly trading range – levels just above the 0.9300 mark – and edged lower for the second straight session on Thursday. The US Treasury bond yields retreated further from the highest level since June touched on Wednesday and kept the US dollar bulls on the defensive. This, in turn, exerted some pressure on the USD/CHF pair, though a combination of factors should help limit any deeper losses, at least for the time being.
The risk-on impulse – as depicted by a bullish trading sentiment around the equity markets – could undermine demand for the traditional safe-haven Swiss franc. The global risk sentiment witnessed a dramatic turnaround after Russian leaders reassured Europe on gas supplies. Adding to this, the top US Senate Republican Mitch McConnell said that his party would allow an extension of the federal debt ceiling into December to avert a federal debt default and further boosted investors' confidence.
Meanwhile, rising bets for an early policy tightening by the Fed should continue to act as a tailwind for the greenback and lend some support to the USD/CHF pair. Investors now seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. The markets might have also started pricing in the possibility for a Fed rate hike move in 2022 amid worries that the recent surge in crude oil/energy prices will stoke inflation.
The fundamental backdrop seems tilted in favour of bullish traders and supports prospects for the emergence of dip-buying at lower levels. Market participants now look forward to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims. This, along with the US bond yields, might influence the USD and produce some impetus to the USD/CHF pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.
