Pound-Franc Jumps on Surprise Hold at SNB

The Swiss National Bank (SNB) unexpectedly paused its interest rate hiking cycle in a move that sent the Swiss Franc sharply lower.

The SNB maintained its policy rate at 1.75% after it judged the “significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure.”

The market was poised for another 25 basis point interest rate hike, resulting in a surprise that prompted a decline in Swiss bond yields and the Franc.

The GBP/CHF exchange rate rose 0.45% to 1.1145, the Euro to Franc was 0.73% higher at 0.9651 and the Dollar to Franc conversion 0.78% up at 0.9058.

The SNB said further interest rate hikes cannot be ruled out and that a further tightening of monetary policy may become necessary to ensure price stability over the medium term.

But the market sees this as a figleaf gesture required to try and contain any significant loosening of financial conditions (falling bond yields and the Franc) and is judging that the bar to further hikes is now materially higher.

In short, the SNB is in all likelihood done with hikes, prompting markets to bring forward expectations for the first cut in the cycle.

The Franc can therefore remain under pressure, but the SNB regularly intervenes in the forex market to manipulate the currency’s value and will in all likelihood limit weakness.

“The SNB is also willing to be active in the foreign exchange market as necessary,” said the central bank in a statement.