FX Watch: US dollar stabilises, channel breakdown for USD/CHF

Tariff threats, hawkish Fed minutes taken in stride

Major US indices edged higher overnight, with the S&P 500 closing at a new record high, underscoring the market's resilience to negative headlines and its appetite for risk. While the resurfacing of US tariff threats—potentially 25% duties on autos, chips, and pharmaceuticals—could have unsettled investors, market participants have heard these before and are largely taking them in stride.

The lack of concrete action thus far has led to these tariff threats being perceived more as a bargaining tool ahead of the April 2 deadline rather than an imminent policy move. While there is a good chance that some tariffs will still eventually be enforced, particularly for EU and China, uncertainty over their scope makes it difficult for markets to fully price in the risks at this stage.

The Federal Reserve (Fed) minutes were the key focus on the calendar, with “upside risks to the inflation outlook” highlighted as a justification for the central bank's decision to hold rates steady in January. Trump’s policies for potential increased tariffs and immigration crackdown no doubt added complexity to the Fed’s balancing act between inflation and employment, forcing policymakers to lean into a wait-and-see approach. That said, with market expectations already well aligned for a rate hold over the next two Federal Open Market Committee (FOMC) meetings, the minutes served more as confirmation of existing sentiment.

US dollar stabilises for now

As mentioned in our Markets to watch (MTW) report on Monday, the US dollar has room to stabilise in the near term as it approaches a crucial weekly horizontal support. The slight hawkish tone from the Fed minutes may have offered some support overnight, but we believe a clearer catalyst is still needed to anchor a sustained turnaround. Bullish momentum remains weak for now, and the lower-high-lower-low dynamics since mid-January this year suggests that market participants may continue watching for the formation of another lower high in the event of a rebound. A crucial resistance may be the 107.60 level, which marked its 13 February sell-off.

Channel breakdown for USD/CHF remains on watch

USD/CHF has reverted to a pattern of lower highs and lower lows in recent weeks, following a nearly 10% rally from October 2024 to mid-January 2025. With the breakdown of a rising channel pattern, the near-term bias leans toward selling on another lower high, while the daily relative strength index (RSI) continues to struggle to reclaim its midline. While we view US tariff risks as more of a delay than a complete elimination, which could still instil renewed traction for the US dollar further down the road, the April deadline allows market participants to set it aside for now, which could leave room for further tapering in still-overcrowded long US dollar positioning.