USD/CHF holds gains near 0.7925 as failed US-Iran talks and inflation fears support USD

The USD/CHF pair kicks off the new week on a positive note and recovers further from a nearly three-week low, around the 0.7855 area, touched on Friday. Spot prices, for now, seem to have snapped a five-day losing streak and currently trade around the 0.7925 region, up 0.50% for the day, amid a broadly firmer US Dollar (USD).

The global risk sentiment takes a turn for the worse in reaction to failed US-Iran peace talks over the weekend and benefits the USD's global reserve currency status. Despite nearly 21 hours of intense discussions, high-level negotiations between the US and Iran ended without a breakthrough. Adding to this, US President Donald Trump said that the US Navy would start blockading any and all ships trying to enter or leave the Strait of Hormuz, raising the risk of a further escalation of tensions in the region.

Meanwhile, the latest developments trigger a sharp rally in Crude Oil prices and revive inflationary concerns, which might force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. Furthermore, hot inflation data released on Friday led investors to abandon bets on Fed rate cuts this year and shift focus towards potential rate hikes. This is reinforced by a fresh leg up in US Treasury bond yields, which turns out to be another factor offering support to the Greenback.

The Wall Street Journal, citing officials familiar with the discussions, reported that regional countries are working to bring the US and Iran back to the negotiating table within days. This keeps the door open for further diplomacy, which keeps a lid on additional USD gains. That said, the USD/CHF pair showed some resilience below the 100-day Simple Moving Average (SMA), and the subsequent move favors bullish traders.  This suggests that the path of least resistance for spot prices is to the upside.