Swissie falls hard as SNB raises rates

The Swiss franc is sharply lower today, after the Swiss National Bank raised rates by 0.75%. In the European session, USD/CHF is trading at 0.9834, up an impressive 1.79% on the day.

SNB sends rates into positive territory

There were no surprises from the SNB, which delivered a sharp 0.75% rate hike today,  bringing the benchmark rate to 0.25%. This follows a 0.75% increase in June. Prior to these moves, the SNB had maintained its benchmark rate at -0.75% since 2015. Switzerland held the distinction of being the only European country with negative rates, but rising inflation has forced the SNB to follow other central banks and tighten policy.

Swiss inflation hit 3.5% in August, a dream figure for other central banks, many of which are grappling with inflation close to double digits. Still, this reading was the highest in 30 years, and the SNB felt compelled to respond forcefully in order to keep inflation at bay. The Bank’s policy statement noted the rise in inflation and that Switzerland’s GDP was lower than expected. The Swiss franc showed limited movement after the Fed rate hike on Wednesday but has plunged today after the SNB’s dramatic move.

Fed delivers 0.75% hike

The Federal Reserve raised interest rates by 0.75% on Wednesday for a third straight month, bringing the benchmark rate to 3.25%. This was largely expected, although there was a slight possibility that the Fed might raise rates by a full point. The Fed’s decision was a “hawkish 0.75% hike”, as the Fed sent a clear message that it will remain aggressive in order to stamp out inflation, even at the cost of a recession. Fed Chair Powell left the door wide open for yet another 0.75% increase in November, and unless inflation shows a dramatic drop, December is likely to bring a hike of 0.50% or 0.75%. With the benchmark rate now in restrictive territory, above the 2.50% neutral rate, the Fed will have to exercise great care in its rate policy.

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USD/CHF Technical

• USD/CHF is testing resistance at 0.9720. Next, there is resistance at 0.9760
• There is support at 0.9642 and 0.9524

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

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