Swiss franc soars after SNB surprise hike

The Swiss franc has posted massive gains today after the Swiss National Bank raised interest rates by 0.50%. In the North American session, USD/CHF is trading at 0.9720, down 2.29% on the day.

It has been a week of central bank drama, which started with the Federal Reserve delivering a massive 0.75% rate hike. This was followed today by a Swiss shocker, as the SNB tightened the screws on monetary policy with its first rate increase since 2007, raising rates from -0.75% to -0.25%. The markets had become accustomed to the SNB’s ultra-low rate of -0.75%, which had been in place since 2015.

Most major central banks, with the notable exception of the Bank of Japan, are in the midst of a rate-tightening cycle, as they attempt to wrestle down surging inflation. After the rate hike, SNB Chairman Thomas Jordan said that the SNB was concerned about rising inflation in Switzerland, which is heading towards 3%. The rate statement reflected Jordan’s comments, saying that further hikes could be implemented in order to stabilize inflation.

The statement also reiterated that the SNB would be “willing to be active in the foreign exchange market as necessary.” The SNB carefully monitors the exchange rate and has intervened in the past when it deemed the Swiss franc’s value as too high, which is detrimental to Switzerland’s export-reliant economy. The Swiss franc has been on a slide, falling 400 points and breaking above parity earlier this week. The SNB may have felt that this was a prudent time to deliver a significant rate hike, even though it would send the Swiss franc sharply higher.

Federal Reserve delivers 75-bp salvo

There were no surprises from the Federal Reserve, which raised rates by 0.75%, to a target range of 1.50-1.75%. The Fed downgraded its US growth forecasts for 2022 and 2023, but insisted that there would be no recession. Some analysts would beg to disagree, but the financial markets were relieved, as Fed Chair Powell said he didn’t expect 0.75% rate hikes to become common. This is a massive rate hike, the largest since 1994. Will it hasten the long sought-after inflation peak? Along with the Fed, we’ll have to be patient and wait.

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USD/CHF Technical

• USD/CHF has broken through support at 0.9928 and 0.9792. The pair is testing support at 0.9698, with 0.9500 the next support line
• There is resistance at 1.0084

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