Dollar-Swiss Franc Exchange Rate Rises Eight-Year High

(CTN News) – After a softer-than-expected US inflation print dragged the US dollar down, the Swiss franc spiked to its highest level against the dollar in over eight years.

As of Wednesday, the currency had gained 1.5% to 0.8660 per dollar, reaching a level last seen at the end of last year in January 2015.

A few weeks earlier, the Swiss National Bank had scrapped a policy of capping its gains against the euro, which resulted in an explosion of the Swiss Franc’s value.

A rally has been taking place in the Swiss franc since late last year amid expectations that the interest-rate differential between Switzerland and the US will continue to narrow, making the franc a haven currency as well as a funding currency for carry trades.

As a result of the SNB’s current tightening cycle, interest rates have been increased by 250 basis points to 1.75% and it appears that another hike will come at the SNB’s next scheduled meeting in September.

The sharp correction in developed rates after the US CPI missed, raises the possibility that the terminal SNB rate may not lag as much behind as initially thought as a result of the sharp correction in developed rates,” said Alexandre Dolci, G-10 FX strategist at Credit Agricole.

During the first nine months of the year, the Swiss Franc has gained 6.5% against the dollar and 2.7% against the euro. This makes it the second best performing currency in the Group-of-10.

The SNB has been selling foreign currencies as part of its efforts to cool inflation, which it expects to average 2.2% both this year and next year, above the 2% ceiling set by the central bank.

The Swiss central bank (SNB) stated at its most recent policy meeting that it “remains willing to purchase foreign currency in the event of excessive appreciation pressure on the Swiss franc,” but noted in the current environment that the focus is still on selling foreign currency.

In response to Wednesday’s market moves, the authority declined to comment on them. According to Vice President Martin Schlegel, additional rate hikes aimed at reducing inflation are not going to threaten the stability of the financial system.

The Swiss National Bank (SNB) removed its cap of 1.20 Swiss francs per euro on the first day of 2015 so as to strengthen its defenses against economic collapse.

During the course of 2018, there was a rapid drop in the pair below 0.90 before gradually returning to the cap level.

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