USD/CHF Slumps To Over A One-Week Low As Fed Hike Interest Rates By 25Bps And Signals A Potential End To Hikes

• The USD/CHF Pair moves below the early 0.88000s pressured by the prevalent US dollar selling
• Fed increases rates a quarter point and signals a potential end to hikes
• The weaker risk tone as a result of renewed concerns about the U.S. banking sector benefits the safe-haven Swiss franc
• Investors now look forward to the release of the US Initial Jobless Claims data report for fresh directional impetus

USD/CHF cross extended the bearish trajectory from the vicinity of the 0.89949 level or monthly high and witnessed heavy selling for the third successive day. The momentum has dragged spot prices to over a one-week low below the early 0.88000s during the mid-Asian session and looks set to maintain the bid tone heading into the European session amid the prevalent US dollar selling. A combination of factors helped the US dollar extend its retracement slide from a three-week high last touched on Tuesday, which in turn acted as a tailwind for the USD/CHF pair. The US Federal Reserve (Fed) on Wednesday raised its benchmark borrowing rate by 0.25 percentage points, lifting its overall fed fund rate to 5% - 5.25%, the highest since August 2007, and further gave hints that the current tightening cycle is at an end.

In a post-meeting statement, the Fed went ahead to offer some clarity on the future pace of rate hikes by saying, “In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments." Investors, however, were drawn to some parts of the document that showed some sentences were omitted and were in the previous statement saying that “the Committee anticipates that some additional policy firming may be appropriate” for the Fed to achieve its 2% inflation goal. 

Additionally, the statement went ahead and revealed a change in language for further monetary guidance after the sentences, “in determining the extent of future increases in the target range” were omitted from the March statement. It's noteworthy, the FOMC had always framed further guidance in its previous statement. The tweaked language plus the dovish comments by Fed Chairman Jerome Powell's during the post-interest rate decision press conference rattled markets to believe this rate hike could be the last. Powell said, “A decision on a pause was not made today” but noted the change in the statement language around future policy firming was “meaningful.”

The aftermath of the conference saw the treasury bond yields slump which in turn triggered heavy selling around the US dollar and, in turn, helped exert downward pressure on the USD/CHF pair. The greenback was further weighed down by a goodish rebound in the US equity markets. Further contributing to the offered tone surrounding the USD/CHF pair were renewed concerns about the U.S. banking sector after California-based lender First Republic spooked the financial markets last week on Tuesday, saying it had lost 40% of its deposits in the first quarter. As a result, the bank's shares plunged 49% on Tuesday, reigniting fears of another banking sector crisis after the collapse of SVB and Signature Bank, followed by a downturn in Credit Suisse.

JPMorgan Chase on Monday took over all of the ailing bank’s deposits and a “substantial majority of assets,” after it emerged the winner of a weekend auction. This in turn saw investors further fleeing to traditional safe-haven assets which in turn benefitted the Swiss. Nonetheless, the US dollar got a little boost on Wednesday after the ISM Non-Manufacturing PMI data for april increased to 51.9 in April of 2023 from 51.2 in March, and slightly higher than market expectations of 51.8. It marked a fourth consecutive month of growth in the services sector. Additionally, an ADP report on Wednesday showed the labor market in the US continued to remain resilient after Private businesses in the US created 296K jobs in April of 2023, well above a downwardly revised 142K in March and beating forecasts of 148K. It is the strongest employment gain since July of 2022, with pay gains slowing rapidly and fewer people switching jobs.

Going forward, investors look forward to the U.S. docket featuring the release of the US Initial Jobless Claims data for this week, seen higher at 240K, up from 230K the previous week. 

Technical Outlook: Four-Hours USD/CHF Price Chart

From a technical perspective, the price's ability to break below the key support level plotted by a horizontal trendline extending from the mid-April 2023 swing low supported the case for further southside moves. As per press time, the USD/CHF pair is trading at 0.88264, down almost 1.05% in the last two days. An increase in selling pressure from the current price level would drag spot prices toward the 0.88000 psychological mark. A four-hour candlestick close below this level would pave the way for further losses around the USD/CHF pair. The downward trajectory could then be extended toward confronting the next relevant support level at 0.87590 en route to the 0.87063 key support level. The RSI (14) at 28.7512 is in oversold conditions, hence warranting caution for traders before positioning for further depreciating moves.

On the flip side, if sidelined investors trigger a bullish reversal, the price will face initial resistance at horizontal trendline now turned resistance level. A convincing move above this level (bullish price breakout) would pave the way for an ascent toward the seller congestion zone due to the 20 (blue) and 50 (red) day Exponential Moving Averages (EMA) level at 0.88926 and 0.89169 levels respectively. Sustained strength above this zone could clear the path for more gains, setting the shared currency’s price up for a 0.8% rally toward the key resistance level plotted by a descending trendline extending from the late-March 2023 swing high.