Franc reacts positively to a new Swiss rate cut
- SNB cuts interest rates for third meeting in a row
- Inflationary pressures in second quarter recede due to Franc’s strength
The Swiss Franc rose in European trade on Thursday against a basket of major rivals after an expected decision by the Swiss National Bank to cut interest rates for the third meeting in a row.
The SNB pointed to the receding inflationary pressures in the second quarter as the local currency gathers momentum against main rivals.
The Price
The US dollar fell 0.5% against the Franc today to 0.8458, with a session-high at 0.8516.
The Franc lost 0.85% on Wednesday against the dollar, the first loss in three days as US treasury yields rebounded.
The SNB
As expected, the Swiss National Bank reduced interest rates by 25 basis points to 1%, the lowest since December 2022, the third such rate cut in a row.
At the June 20 meeting, the SNB also announced a 0.25% rate cut to 1.25%, while analysts expected no change back then.
Policy Statement
The SNB said on Thursday that receding price pressures in the second quarter reflect the increasing strength of the franc, while asserting the bank's readiness to intervene in the forex market if needed.
The SNB said it became important to issue more interest rate cuts in upcoming quarters to stabilize prices in the medium term.
Outlook
The SNB expects the Swiss economy to grow by 1% in 2024, and by 1.5% in 2025.
The SNB reduced its inflation outlook in 2024 to 1.2%, and in 2025 to 0.6%, and in 2026 to 0.7%.
Thomas Gordon
SNB Governor Thomas Gordon said:
- Negative inflation risks outweigh positive risks
- Strong Franc and lower oil and electricity prices contributed to lower prices
- No recession concerns in the short term
- More rate cuts could be necessary to stabilize prices
Yen sharpens decline to three-week low after BOJ meeting minutes
- Odds of third Japanese rate hike this year decline
- Higher US treasury yields weigh on yen
The yen fell in Asian trade on Thursday on track for the second daily loss against the dollar, hitting three-week lows after the Bank of Japan’s meeting minutes.
The minutes showed the members are divided over the need to continue hiking interest rates, which in turn hurt the odds of a third hike this year.
The Price
The USD/JPY pair rose 0.2% today to 145.04 yen per dollar, the highest since September 4, with a session-low at 144.44.
The yen closed down 0.1% on Wednesday against the dollar, the first loss in three days after US long-term treasury yields rebounded.
BOJ Meeting Minutes
The Bank of Japan’s July meeting minutes showed that policymakers are divided on the path forward.
The BOJ hiked interest rates by 15 basis points at the July meeting and maintained interest rates unchanged at the September meeting, at 0.25%, the highest since 2008.
The BOJ in September unanimously voted to hold interest rates unchanged in order to wait for more data to consider the need for further normalization of policies.
Japanese Rates
Traders still see little chance of a BOJ interest rate hike in October, while the odds of a December rate hike stood at 60%.
US Yields
US 10-year treasury yields rose 0.1% on Thursday, maintaining gains and about to scale multi-week highs, in turn boosting the dollar.
The developments came after strong US housing sales data for August, which reduced concerns about a US recession in the third quarter.
According to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut in November fell from 60% to 58%, with the odds of a 0.25% rate cut standing at 42%.
Now investors await a batch of important US GDP and unemployment claims data later this week to gather more clues on the future of monetary policies.
US crude stocks fall by over 4 million barrels
The Energy Information Administration reported a drop of 4.5 million barrels in US crude stocks last week to a total of 413.0 million barrels, while analysts expected a drop of 1.3 million barrels.
Gasoline stocks fell by 1.5 million barrels to 220.1 million barrels, as distillate stocks fell by 2.2 million barrels to 122.9 million barrels.
Wall Street declines but remains near record highs
US stock indices declined mildly on Wednesday but remained near record highs scaled yesterday.
The gains came as the Federal Reserve officially commenced a new policy easing cycle with a surprising 0.5% interest rate cut last week to 5%.
The markets are expecting another similar Fed rate cut by the end of the year.
On trading, Dow Jones fell 260 points to 41950 points as of 16:44 GMT, while S&P 500 shed 0.2%, or 8 points to 5724, as NASDAQ bucked the trend with a 0.1% gain to 18,092.