The Swiss National Bank has just delivered one of the biggest surprises in the history of central banking courtesy of a surprise 50 basis point interest rate hike that takes the policy rate to -0.25% Dollar is trading higher against all G-10 currencies with the exception of the Japanese yen as markets begin the week in a risk off mood following Friday’s faster than forecast inflation print. High inflation numbers weigh on risk sentiment and traders are pricing in 255 additional bps of tightening through the end of the year.
The strengthening Dollar is proving a headache outside of the U.S. as the vast majority of countries pay for energy and commodities in USD.
The SNB will be aware that underpinning the Franc via higher interest rates therefore acts as a buffer to imported inflation and confirms central banks are now fighting for stronger currencies.
"With much of Switzerland’s current inflation coming through the trade channel, the Swiss National Bank is unofficially targeting a stronger inflation-adjusted CHF rate (real exchange rate) in order to reduce the level of imported inflation