USD/CHF sticks to modest gains above 0.8900 mark as US inflation data looms large

The USD/CHF pair attracts some dip-buying on Wednesday and climbs back above the 0.8900 mark, albeit lacks follow-through and remains well below the overnight swing high.

The recent rise in the US Treasury bond yields, bolstered by easing fears of a full-blown banking crisis in the US, pushes the US Dollar (USD) higher for the third straight day, which, in turn, acts as a tailwind for the USD/CHF pair. That said, the uncertainty over the US debt limit, along with the Federal Reserve's (Fed) less hawkish outlook, leads to a fresh leg down in the US bond yields and caps the Greenback.

It is worth recalling that US President Joe Biden and House of Representatives Speaker Kevin McCarthy remained divided over raising the $31.4 trillion US debt limit, though agreed to continue talks aimed at breaking the deadlock. The Fed, meanwhile, last week outlined a more stringent and data-driven approach to hiking rates further. Moreover, the markets have been pricing in the possibility of rate cuts later this year.

This, in turn, is holding back the USD bulls from placing aggressive bets. Apart from this, a generally weaker tone around the equity markets lends some support to the safe-haven Swiss Franc (CHF) and contributes to keeping a lid on the USD/CHF pair, at least for the time being. Traders also seem reluctant and prefer to wait for the latest US consumer inflation figures, due during the early North American session.

The crucial US CPI report will play a key role in influencing market expectations about the Fed's next policy move, which, in turn, should drive the USD demand. Apart from this, the broader market risk sentiment should provide some meaningful impetus to the USD/CHF pair and allow traders to grab short-term opportunities. This, in turn, warrants some caution for bulls and before positioning for further gains.

Technical levels to watch