June 28, 2022

Sterling Falls and Swiss Franc Climbs after Rate Hikes

Thursday turned out to be a volatile day for the Sterling after the interest rate was hiked by up 25 basis points by the Bank of England (BoE). This confounded forecasts by some experts of a bigger hike in the interest rate for taming inflation. Meanwhile, the Swiss National Bank (SNB) ended up delivering a surprise hike in the interest rate, which saw the Swiss franc record its biggest jump in a single day against the euro after 2015 when the central bank had opted to ditch the currency peg.

The Swiss Franc Moves

The SNB also joined the list of global central banks in their journey of tightening their respective monetary policies, which saw it hike up the interest rate for the first time in 15 years. Since 2015, the policy rate in the country has stood at -0.75%, but the hike on Thursday saw it come to -0.25%. The currency had also climbed against the euro to its two-month high.

It was scheduled to have the best day against the single currency for the first time since January 2015. By 1118 GMT, the Swiss Franc had gone up by 1.8% to reach 1.0200 against the euro. There is a 1.4% increase in the Swiss Franc against the US dollar, which put it on track for the best day against the greenback in a month.

Market analysts said that the decision of the SNB had come as a big surprise. There had been talking that the Swiss National Bank could move away from its negative position because of a hawkish ECB, but the 50 basis points hike had come as a big surprise. Most participants had expected the bank to continue with the same rates on Thursday and hint of a hike in September.

Sterling Falls

In contrast, there was a 0.8% decline in the British pound, as it fell to $1.2085, which was close to a two-year low it had reached this week. This was after the Bank of England announced that it was hiking up the interest rates for the fifth time in order to fight inflation, even though there have been rising concerns about an economic slowdown in the country.

Forex analysts stated that the expectations had been leaning towards a rate hike of 50 basis points by the BoE, after the US Fed had increased their rate by 75 basis points yesterday and after the SNB’s hike of 50 basis points in the morning. Nonetheless, the central bank has given a hawkish message for the future that it would be more forceful if inflationary pressures don’t ease up.

What Caused the Hike

The moves from the SNB and BoE came after the US Federal Reserve had made its move a day earlier and the ECB had signaled that it would also be hiking rates in July. The only two central banks in the developed world to have not flagged higher rates were the SNB and the Bank of Japan, with the latter scheduled for a meeting on Friday.

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