The Swiss franc dropped the most since 2015 against the euro after the Swiss National Bank’s 75 basis-point interest-rate hike proved not enough to satisfy traders’ expectations, Bloomberg reported.
The currency plunged as much as 1.8% to 96.81 centimes per euro after the SNB raised its key rate to 0.5%, as expected by economists. The franc pared some of the drop as SNB President Thomas Jordan said that the central bank would consider interim decisions if needed.
“The decision has seen euro-franc and pound-franc shorts squeezing higher as the ‘whisper’ was for a bigger hike,” said Vasileios Gkionakis, a currency strategist at Citigroup Inc., in a note to clients.
SNB Ratchets Up Rate Hikes With 75 Basis-Point Move Matching ECB
Still, some see this as only a temporary setback for the currency, which hit a seven-year high versus the euro earlier on Thursday, as it’s poised to benefit in a gloomier growth backdrop given its haven status. Jordan said the SNB was ready to be active both ways in the currency market.
To help adjust to its exit from negative rates, the SNB decided to tier the remuneration of banks’ sight deposits. Up until a certain threshold, financial institutions get the policy rate, and after that zero percent applies. That “does not help” the franc, said Gkionakis. The ECB decided this month to remunerate commercial bank deposits at its deposit rate, now at 0.75%.
“The Swiss franc has been hit hard temporarily by a scaling back of more aggressive rate-hike expectations,” said MUFG currency analyst Lee Hardman.