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Swiss Franc Dips to Four-Month Lows After SNB Keeps Rates at 0%
Confirmed
In Short: The Swiss Franc fell to fresh four-month lows after the Swiss National Bank left its benchmark interest rate unchanged.
The Swiss Franc (CHF) dropped to fresh four-month lows following the Swiss National Bank's (SNB) decision to keep its benchmark interest rate at 0%, as widely expected.
The USD/CHF pair rose to 0.8269, its highest level since late May, from session lows just below 0.8530.
The SNB's monetary policy statement highlighted that inflation accelerated in August, driven by higher oil prices, and is expected to continue rising over the coming months before declining in 2027.
SNB President Martin Schlegel affirmed that low interest rates boost the Franc's appeal for carry trade, a practice where investors borrow a low-yielding currency to buy a higher-yielding one.
The SNB acknowledged that the second quarter's Swiss GDP was exceptionally strong but warned that economic growth will remain moderate over the coming quarters amid high inflationary pressures.
The SNB's decision to maintain interest rates at 0% is typically bearish for the Swiss Franc, as it signals a dovish view on the economy.
The Swiss National Bank announces its interest rate decision after each of its four scheduled annual meetings, one per quarter.
Traders are now focusing on the upcoming US weekly Initial Jobless Claims report and comments from several Fed officials who have reiterated support for recent rate increases and issued warnings about persistent inflation risks.
The Bank of Japan raised its short-term interest-rate target to 1.25% from 1.00%, marking another step in the normalisation of monetary policy.
The British Pound to Swiss Franc exchange rate is influenced by Bank of England and Swiss National Bank policy, together with changes in the interest-rate gap between the two currencies.
UK interest-rate expectations, UK inflation, and wage and employment data can affect the British Pound, while Swiss interest-rate expectations, Swiss inflation, and safe-haven demand can move the Swiss Franc.
What this adds
The SNB's decision to keep rates unchanged and its comments on inflation and economic growth add to the bearish sentiment for the Swiss Franc.
The Bank of Japan's rate hike and the US Fed's stance on inflation risks are additional factors influencing currency markets.
Background
The Swiss National Bank denied manipulating the Swiss franc as the currency strengthens ahead of its policy announcement.
The Bank of Japan raised interest rates to a 31-year high, signaling its intent to combat inflation.
What's confirmed
- The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.
What's still developing
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- These figures have raised concerns that the US economy is overheating, which poses additional pressure on the Fed to hike interest rates.
- Know more. ) The table below shows the percentage change of Swiss Franc (CHF) against listed major currencies today.
- DBS notes that the SNB is “nevertheless likely to raise its near-term inflation forecast as elevated energy prices feed through into the economy amid persistent uncertainty in the Middle East,” even as Swiss growth has improved and recent easing in CHF haven pressures against the Euro and Pound reduces the urgency for a policy move.