USD/CHF races higher on no signs of abdication from king USD

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  • Federal Reserve’s Jerome Powell disappoints the markets and sends bonds lower.
  • US yields have shot above 1.5% again which has taken the greenback along for the journey.

The greenback continues to reign as king of the forex space in a strong move higher during the Federal Reserve’s chair event, whereby Jerome Powell declined to pushback on the recent moves in the bond markets. 

As a result, USD/CHF is now approaching the 0.93 area after rallying near to 1% on the day so far, travelling from a low of 0.9189 to reach a post-Powell 0.9291 high.

“We monitor a broad range of financial conditions and we think that we are a long way from our goals,” Fed’s Powell said in an interview with the Wall Street Journal’s chief economic correspondent during a live webinar.

When addressed on the recent volatility in the bond market and the market’s presumption that higher levels of inflation will force the hand of the Fed, much to the dislike of markets, Powell simply stated the following:

“I would be concerned by disorderly conditions in markets or persistent tightening in financial conditions that threaten the achievement of our goals.”

The main message as we head into the blackout period before the March 16-17 FOMC meeting is that the Fed will not be raising rates until the mandated conditions are fulfilled. 

Powell also stated that financial conditions remain highly accommodative, indicating the Fed is not concerned about the current level of yields but is watching volatility. 

As a result, the bond market got spooked again and the Fed got more volatility to watch closely. 

US Treasury yields are spiking with the 10-year yield well above 1.50%, advancing to a high of 1.5470%.

US stocks have also fallen with prevailing risks to the economic recovery pertaining to the threat of higher rates and inflation. 

The dollar reigns over its peers, but Swiss can hold up

DXY took out last week’s high near 91.394 and is on track to test the February 5 high near 91.602.  A break above that would open risk towards the November 23 high near 92.80.

CHF makes up only 3.6% of the DXY basket.

In an environment whereby higher betas, such as AUD, are more vulnerable to risk-off supply and rising US yields, the Swiss franc has historically fared better to its peers, outside of the greenback, within the G10 scope. 

As investors rotate away from, say, the commodity complex, the safe-haven appeal of Switzerland could reign in the price of USD/CHF which is already overdue a weekly correction as it moves deeper into supply territory. 

 

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