USD/CHF clings to gains near 0.9200 mark, Powell’s testimony awaited

• USD/CHF regained positive traction on Tuesday and inched back closer to two-month tops.
• The Fed’s hawkish turn, an uptick in the US bond yields continued underpinning the USD.
• A generally positive risk tone undermined the safe-haven CHF and remained supportive.

The USD/CHF pair held on to its modest intraday gains through the mid-European session, with bulls now awaiting a sustained move beyond the 0.9200 round-figure mark.

Following the previous day's modest pullback from over two-month tops, the USD/CHF pair managed to regain positive traction on Tuesday and was supported by a combination of factors. The Fed's sudden hawkish shift last week continued acting as a tailwind for the US dollar. Apart from this, a generally positive tone around the equity markets undermined the safe-haven Swiss franc and provided a modest lift to the major.

It is worth recalling that the Fed surprised investors at the end of June policy meeting and brought forward its timetable for the first post-pandemic interest rate hikes. The so-called dot plot pointed to two rate hikes by the end of 2023 as against policymakers’ projection for no increase until 2024 in the March meeting. This, along with a modest uptick in the US Treasury bond yields, further extended some support to the USD.

St. Louis Fed President James Bullard said on Monday that the Fed should be prepared for inflation to surprise on the high end through next year. Adding to this, the Fed Chair Jerome Powell – in prepared testimony for the congressional hearing – also highlighted the risk of rising inflation pressures. This, in turn, pushed the yield on the benchmark 10-year US government bond back above the 1.50% threshold on Tuesday.

Hence, the key focus will remain on the Fed Chair Jerome Powell's testimony before the House Select Subcommittee on the Coronavirus Crisis. Powell's remarks will be looked upon for fresh clues about the policy outlook and infuse some volatility in the markets. In the meantime, the US economic docket – featuring the second-tier releases of Existing Home Sales and Richmond Manufacturing Index – might provide some impetus to the USD/CHF pair.

Technical levels to watch