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Swiss Franc Plummets After SNB's Surprise Rate Cut, Signals Currency Market Interventions

Swiss Franc Declines as SNB Cuts Rates to 1.5%, Signals Market Intervention Readiness

By Mackenzie Crow

4/4, 03:01 EDT

Key Takeaway

  • Swiss franc drops as worst G-10 currency against the dollar after SNB's unexpected 25 basis point rate cut to 1.5%.
  • SNB signals readiness for currency market interventions, amidst broader central bank policy shifts in Europe.
  • Franc volatility spikes, reflecting market anticipation of SNB moves amid low Swiss inflation and adjusted forecasts.

Swiss Franc Faces Pressure

The Swiss franc experienced a notable decline, becoming the worst-performing currency among the G-10 currencies against the dollar. This movement followed the Swiss National Bank's (SNB) unexpected decision to cut interest rates by 25 basis points to 1.5%, contrary to the estimated 1.75%. The SNB also signaled its readiness to intervene in currency markets if necessary, highlighting a proactive stance towards managing the franc's value. The franc's drop is in line with recent moves as it has lagged peers so far this year and will likely see more declines after the SNB unexpectedly cut interest rates last month while also scaling down its intervention in currency markets.

Central Bank Strategies in Focus

The SNB's rate cut comes at a time when central banks across Europe are making pivotal decisions regarding monetary policy. The Norges Bank of Norway is anticipated to maintain its current interest rates, emphasizing a continued commitment to a restrictive monetary policy. Meanwhile, the Bank of England has hinted at a potential review of its Bank Rate, although persistent services inflation in the UK may limit any unexpected moves. These developments occur amidst traders' anticipation of the Purchasing Managers' Index (PMI) numbers from the euro zone, which are expected to show improvement across all activity categories.

Anticipation and Volatility in the Currency Market

The currency market, particularly traders focusing on the Swiss franc, had been bracing for potential surprises from the SNB, with franc volatility reaching its highest level in a year. This cautious stance stems from the SNB's history of unexpected decisions, such as the significant 50-basis point rate hike in June 2022, which preceded the European Central Bank's (ECB) rate increase. With Switzerland's inflation averaging just 1.25% in the early months of the year and the government adjusting its inflation forecast downwards, the potential for surprise actions from the SNB was a focal point of speculation.