On Thursday, the Swiss National Bank warned investors that it intended to intervene in the FX markets with the introduction of a negative interest rate, specifically -0.25% on certain deposit accounts with high balances, in order to discourage investors from buying the safe haven Swiss Franc. As a result, the Swiss Franc struck a more than 2-year trough versus the U.S. Dollar and a 2-month low versus the common currency Euro. Most analysts were expecting the SNB to make just such a move though some FX investors were caught by surprise.
As reported at 8:31 am (GMT) in London, the USD/CHF was trading at 0.9848 Swiss Francs while the EUR/CHF was trading at 1.2098 Swiss Francs, moving away from the SNB imposed cap set at 1.20 Swiss Francs. The EUR/USD also dipped to below the $1.23 level as investors consider that the SNB’s move might also impact its own holdings of euro-denominated FX reserves.
Fed Plans Remain Intact
In the U.S., the Federal Reserve hinted that it was prepared to hike interest rates in 2015, but would exercise caution in making that decision, suggesting to analysts that the Fed will follow through on its plans but not anytime soon. The U.S. Dollar Index moved close to the recently struck 6-year peak with a 1% increase after the Fed’s announcement was made public; the Index is currently trading nearly flat at 89.131 .DXY.