The Swiss National Bank continued to tighten its monetary policy by raising its key interest rate by 50 points to 1.5% today. This decision is broadly in line with the market expectations of economists prior to the Credit Suisse story. The decision mainly shares the same logic with that of the Fed and the ECB: It is important to move within market expectations to avoid market chaos.
The SNB has raised rates by 225 bp over the recent tightening cycle, less than the Fed (475 bp) and the ECB (350 bp) did. However, this has not been a problem for the CHF, which is roughly at the same level as a year ago against the dollar and has strengthened against the euro for several reasons.
The Swiss central bank had more room to manoeuvre thanks to lower inflation. At 3.4%, it is still a concern but not as much of a problem as in the US (6%) or the eurozone (8.5%). Adjusted for inflation, real interest rates in Switzerland are not as deeply negative as in most other developed countries.
In addition, the SNB continues to signal its willingness to act in the foreign exchange market by selling some of its huge reserves. Such moves quickly strengthen the franc, contributing to pressure on import prices, but indirectly affecting general financial conditions.
At the same time, in its comments on the interest rate decision, the SNB indicated its willingness to raise rates further, citing strong second round effects and high inflationary pressures abroad.
In our view, the Credit Suisse case has increased the need for a rate hike to make Swiss franc deposits more attractive for foreigners. This is a U-turn of the policy of the past decade of capital inflows amid “global zero interest rates”. Now that interest rates are significantly higher in the US and Europe, and with UBS and the risk of "contagion" from Credit Suisse constantly in the news, Switzerland will have to actively compete for global deposits in order not to provoke unnecessary pressure on the franc.
Trade Responsibly. CFDs and Spread Betting are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.37% of retail investor accounts lose money when trading CFDs and Spread Betting with this provider. The Analysts' opinions are for informational purposes only and should not be considered as a recommendation or trading advice.
Follow us on Telegram
Stay updated of all the news
EUR/USD remains on the back foot below 1.0800
EUR/USD remains on the defensive below 1.0800, as it consolidates weekly gains heading into Friday’s European session. The pair takes cues from the market’s sluggish momentum amid a light calendar and repositioning ahead of next week’s top-tier EU/ US events.
GBP/USD keeps range around 1.2550 amid quiet markets
GBP/USD is keeping its range play intact at around 1.2550 in the European morning this Friday. The US Dollar is licking its wounds following the US jobs data-led steep sell-off. Markets stay cautious, anticipating the end-of-the-week flows and position adjustments.
Gold lacks firm intraday direction, flat-lines around $1.965 area
Gold price struggles to capitalize on the previous day's solid rebound from the 100-day Simple Moving Average (SMA) support near the $1,940-$1,939 area and oscillates in a narrow trading band on Friday.
Binance.US to suspend USD deposits, citing aggressive and intimidating tactics by the SEC
BinanceUS, the American arm of Binance.com, has indicated plans to suspend USD deposits, noting that its banking partners would do the same for withdrawal beginning June 13.
Eurozone in recession, but why?
It appears that a technical recession has indeed materialized, although the statistical offices took some time to officially declare it. The slight decline of 0.1% in both the fourth and first quarters is rather minimal.