Swiss franc up after rate hike in surprise move

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Swiss franc up after rate hike in surprise move

After the euro and the dollar went up on Thursday, the Swiss franc went up against the euro and the dollar after it raised its policy interest rate for the first time in 15 years.

The SNB has increased its policy rate to 0.25% from the 0.75% level it has deployed since 2015, which has resulted in a tighter monetary policy to fight surging inflation.

It was the first rate hike since September 2007 by the SNB.

The Swiss franc was at a two-month high against the euro, and was 1.8% higher at 1.0194 as of 0905 GMT. The franc rose by 1.35% against the U.S. dollar to 0.9807.

Jane Foley, head of FX strategy at Rabobank in London, said the SNB move was a big shock.

Talk had been saying that the SNB could start to move away from their deeply negative position on rates under the cover of the more hawkish ECB, but today's 50 bps move is still a big surprise. Most analysts had expected the SNB to hold rates on Thursday and flag a hike for September, although a couple of had predicted a 25 bps move.

The move followed a 75 basis point bps rate hike by the U.S. Federal Reserve on Wednesday, while the European Central Bank signalled last week it would raise rates in July, and the Bank of England is expected to raise rates later today.

SNB and the Bank of Japan, which met on Friday, were the only major developed world central yet to raise interest rates in a tightening cycle that started late last year.

As global risk sentiment worsened, the BoE meeting fell ahead of it. The central bank is expected to raise borrowing costs for the fifth time since December despite concerns about a slowdown in the British economy.

In early London trading, it fell 1% to $1.2059, not far from a two-year low touched this week. It was last down 0.5% at $1.2113 ahead of the BoE meeting, which is expected to bring at least a 25 bp hike, with swaps pricing indicating an 80% chance of a 50 bps hike.

If we were to see a 50 bps hike, not our central case view, we would look to sell into a knee-jerk rally, as the macro story remains troublesome, said Jeremy Stretch, head of G 10 FX strategy at CIBC.

After an emergency meeting on Wednesday, traders were closely watching several ECB speakers as the central bank promised to control borrowing costs for the euro zone's periphery countries.

The euro fell 0.4% to $1.0400 against the dollar, not far from a one month low on Wednesday.

The safe-haven U.S. dollar was nearing a 20 year high before the Fed raised borrowing costs on Wednesday by the most since 1994 due to worsening market risk sentiment.