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The Swiss National Bank surprised markets yesterday with a 50-bps rate cut, bringing the target rate down to just 0.5%. The larger-than-expected adjustment weighed heavily on the Swiss Franc, pushing it down against the Dollar and the Euro, to $1.12 and €1.07 respectively. Over the last few years, the Swiss Franc has stubbornly appreciated against other major currencies but particularly against the Euro. The strength of the Franc has suppressed inflationary pressures locally and also negatively affected the Swiss export market. Monetary authorities in Switzerland have sought to mitigate these issues in recent times, with mixed results. The currency remains attractive due to safe-haven inflows and because interest rates on the Euro are expected to continue to decline further. The SNB still has a couple of tricks up its sleeve, including negative interest rates, which were used to great effect between 2014 and 2022, as well as the ability to deploy its huge balance sheet.
The European Central Bank enacted a rate cut of its own yesterday, lowering rates on the Euro by quarter of a percentage point, to the surprise of no one. Nevertheless, the Euro continued its fall this week, now approaching $1.045. The Dollar is back on the front foot, pushing the DXY over 107, despite an all but certain incoming rate slash from the Fed next week. The fact is that most currencies are in a race to the bottom, interest rate wise, and the Dollar is falling slower than the rest.
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