The Swiss franc is sharply lower today after the Swiss National Bank raised rates by 0.75%. In the European session, USD/CHF is trading at 0.9834, up an impressive 1.79% on the day.
SNB sends rates into positive territory
There were no surprises from the SNB, which delivered a sharp 0.75% rate hike today, bringing the benchmark rate to 0.25%. This follows a 0.75% increase in June. Prior to these moves, the SNB had maintained its benchmark rate at -0.75% since 2015. Switzerland had held the distinction of being the only European country with negative rates, but rising inflation has forced the SNB to raise rates above zero.
Swiss inflation hit 3.5% in August, a dream figure for other central banks, many of which are grappling with inflation close to double digits. Still, this reading was the highest in 30 years, and the SNB felt compelled to respond forcefully in order to keep inflation at bay. The Bank’s policy statement noted the rise in inflation and that Switzerland’s GDP was lower than expected. The Swiss franc showed limited movement after the Fed rate hike on Wednesday but has plunged today after the SNB’s dramatic move.
Fed delivers 0.75% hike
The Federal Reserve raised interest rates by 0.75% on Wednesday for a third straight month, bringing the benchmark rate to 3.25%. This was largely expected, although there was a slight possibility that the Fed might raise rates by a full point. The Fed’s decision was a “hawkish 0.75% hike”, as the Fed sent a clear message that it will remain aggressive in order to stamp out inflation, even at the cost of a recession. Fed Chair Powell left the door wide open for yet another 0.75% increase in November, and unless inflation shows a dramatic drop, December is likely to bring a hike of 0.50% or 0.75%. With the benchmark rate now in the restrictive territory, above the 2.50% neutral rate, the Fed will have to exercise great care with future rate increases.
- USD/CHF has pushed above resistance at 0.9711 and 0.9776. The next resistance line is 0.9892
- There is support at 0.9652 and 0.9530