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SNB Stuns Consensus With 50bps Hike

FOREX
  • CHF is surging against all others in G10 to be the best performing currency globally following the SNB rate decision. The Bank surprised markets by raising rates by 50bps to -0.25%, a move markets had seen the SNB waiting until September to execute. As such, market pricing has rushed higher, with SARON futures now seeing a further 50bps hike (taking rates to +0.25%) in September.
  • The bank tightened policy to counter inflationary pressure in Switzerland, which is now seen above target until the second half of 2023 and also dropped their view that the CHF is "highly valued", adding considerable two-way risk to the exchange rate.
  • In response, EUR/CHF has traded through 1.02 for the first time since early May, opening support at 1.0179, the 61.8% retracement of the March - May upleg as well as 1.0088 - marking the April low.
  • Elsewhere, risk sentiment is fragile, evident in weakness across the SEK and NOK so far Thursday, while JPY trades well. USD/JPY has shown below the Y133.00 handle, with equity markets also heading south. The bear market in the E-mini S&P has extended, putting the index 23% off the January high.
  • Focus turns to the Bank of England rate decision, at which the Bank are seen raising rates by 25bps to 1.25% - the highest rate since the financial crisis in 2008.
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