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20/06/24
189
CHF Tumbles After SNB Rate Cut
On Thursday, the Swiss franc was sharply lower, and USD/CHF traded at about 0.8897, up 0.67% for the day in the European session.
The Swiss National Bank decided to cut rates for a second consecutive time and reduced the cash rate to 1.25% from 1.50%.
As there were good reasons for the SNB to make either decision, it was likely to shake up the Swiss franc. May inflation stayed unchanged at 1.4%, in the upper half of the target band of between 0% and 2%. The SNB may have easily held rates as growth has been steady.
There were, however, other factors that convinced policymakers to cut rates, like the exchange rate. The Swiss franc has climbed 3.3% versus the US dollar since late May. The SNB doesn’t want the currency to appreciate too fast as this hampers the export sector, a crucial element of the Swiss economy.
The rate cut on Thursday has already pushed the Swiss franc down and the rate statement mentioned that the SNB would be active in the foreign exchange market if required. This was a reminder that the central bank won’t hesitate to intervene in the foreign exchange markets to keep the exchange rate at a suitable level.
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