SNB Locks In More Swiss Franc Weakness With Surprise Rate Cut

Above: SNB President Jordan addresses the media following the decision. Image © Pound Sterling Live, SNB.

The Swiss Franc was sold after the Swiss National Bank (SNB) became the first G10 central bank to commence an interest rate cutting cycle. Analysts say further weakness is now likely as the SNB becomes an outlier.

The Pound to Franc exchange rate rose by as much as three-quarters of a per cent to 1.1459 after the SNB cut rates by 25 basis points and said its "fight against inflation over the past two and a half years has been effective".

"The SNB cut rates 25bp today, against our expectations, and the CHF is likely to weaken on the back of this," says Dominic Bunning, a strategist at HSBC.

The Euro to Franc rate rose to 0.9748, the Dollar to Franc rate went to 0.8927.

"The SNB is in a rush to cut... it's interesting now because we are entering a multi-speed exit from tightening phase of the cycle and central banks are starting to need to think for themselves again and take things in the direction that best suits their economy," says Neil Wilson, Chief Market Analyst at Finalto.

The currency market reaction reflects a divergence in central bank policy, with the Fed, ECB, and Bank of England only likely to cut rates mid-year.

The SNB says inflation has been back below 2% - and "thus in the range the SNB equates with price stability" - for a number of months now.

According to the SNB's new forecast, inflation will likely remain in this range over the next few years, inviting the prospect of further rate cuts.

"The CHF has already been an underperformer this year and is now likely to extend this underperformance. Being the first G10 central bank to cut will undermine the currency from a carry perspective with the CHF likely to be increasingly seen as a funding currency of choice in a world of low FX volatility," says Bunning.