USD/CHF sinks to 6-week low as US bond yields retreat

The USD/CHF price declined by more than 0.75% on Monday as the market reflected on the weaker US dollar. The pair fell to 0.9133, which was the lowest level since March 1.

Swiss franc gains momentum

The Swiss franc gained momentum against the US dollar as the Treasury yields continued to drop. The 10-year bond yield declined to 1.56%, which was below the year-to-date high of 1.76%. The 30-year yield declined to 2.26%, which is a sign that investors expect that the Federal Reserve will not hike rates any time soon. 

In addition to the Swiss franc, the US dollar dropped by more than 0.50% against most currencies like the euro, sterling, and Japanese yen. However, the Swiss franc was generally unmoved against other currencies like the sterling and euro, as shown below.

The USD/CHF has been in a steep sell-off recently even after the divergent economic numbers from the US and Switzerland. In the US, recent numbers showed that the unemployment rate dropped to 6.0% in March while the economy added more than 900k people. As the country ramps up its vaccination drive, this trend will likely continue. 

Further, the US is considering implementing a major infrastructure project that could cost more than $2 trillion. This will be the biggest spending on record. Analysts expect a few Republicans will support the spending in a bid to improve the country’s key infrastructure projects like roads and bridges.

Last week, data from the US showed that consumer prices and retail sales rallied last month. The industrial and manufacturing sectors have also done well. 

Therefore, while these numbers should be good for the USD/CHF, the Fed’s hesitancy on rates has led to a weaker dollar. The Fed has insisted that interest rates will remain at the current level for a few more years. 

USD/CHF outlook

The USD/CHF pair has been in a strong downward trend in the past few weeks. On the four-hour chart, the pair has dropped close to the 50% Fibonacci retracement level. It has also moved below the short and longer-term moving averages. It has also tested the second support of the standard pivot points.

Therefore, the pair will likely continue falling as bears target the third support level at 0.9075, which was the lowest level since February 25. However, we should not rule out a retest of the first support at 0.9165.