Ella 
USD/CHF attracted some bargain hunting during Friday’s Asian session and looks set to build on the previous day’s momentum above the psychological 0.9000 mark. USD/CHF is currently trading around 0.9900, still some way off the highest levels since June 13 hit after the Swiss National Bank (SNB) unexpectedly suspended trading on Thursday.
The Swiss National Bank ended a streak of five rate hikes by deciding to keep its benchmark rate unchanged at the end of its quarterly monetary policy meeting, amidst market expectations for a 25 basis point hike. In an accompanying statement, the SNB noted that significant tightening of monetary policy in recent quarters was addressing remaining inflationary pressures. Prior to this, a series of recent weak real economic data, as well as overall and core inflation below 2%, have suppressed the Swiss franc and actively boosted USD/CHF.
On the other hand, the U.S. dollar held steady below the six-month high hit the day before amid the Federal Reserve’s hawkish outlook, which was seen as a tailwind for USD/CHF. The Federal Reserve decided to keep interest rates unchanged at a 22-year high in a range of 5.25%-5.50%, but warned that persistently high inflation would likely lead to at least one more rate hike by the Fed in 2023. Additionally, a so-called “dot plot” showed that policymakers see the benchmark rate at 5.1% next year, suggesting just two rate cuts in 2024, compared with expectations for four rate cuts from the Fed.
This once again confirms market expectations that the Federal Reserve will maintain higher interest rates for a longer period of time. In addition, an unexpected drop in the number of U.S. initial jobless claims last week triggered a new round of selling in the U.S. fixed income market and pushed the interest rate-sensitive two-year U.S. Treasury yield to a 17-year high. The 10-year U.S. Treasury yield also climbed to its highest level since November 2007, continuing to support the dollar. That said, a generally weak tone in equity markets could favor the safe-haven CHF and prevent USD/CHF from appreciably rising.
However, the above fundamental backdrop seems firmly tilted towards the bullish side for USD/CHF. Elsewhere, USD/CHF broke above the technically crucial 200-day simple moving average (SMA) overnight, validating the bullish outlook and signaling minimal upside resistance for USD/CHF. Market participants now look forward to PMIs, which could trigger broader risk sentiment in the market and provide some momentum for USD/CHF. Meanwhile, USD/CHF remains on track to close in positive territory for a tenth consecutive week.
