Switzerland surprises. SNB lowers interest rates

The SNB is the first central bank among the G10 countries to reduce interest rates. Markets were surprised because the bank's earlier announcements did not indicate such a move in March. The Swiss franc lost both against the dollar and against the euro the trend may continue in the coming weeks. There was also a dovish tone from the meeting's results Bank of England, even though the institution maintained the cost of money at its current level.

The SNB's effective fight against inflation

Of course, given the moderately downward inflation trend in Switzerland, a cut was possible. The SNB assessed its fight against price increases over the last two years as effective. The CPI index has been below 2% for several months, i.e. in the range that the central bank associates with price stability. According to the new forecast, "inflation is likely to remain within this range over the next few years." Making a decision Bank of Switzerland took into account in addition to reduced inflationary pressure as well appreciation of the Swiss franc in real terms over the last year. Currently, the main interest rate is 1,5%.

The central bank added that it intends to closely monitor CPI developments and will further adjust its monetary policy if necessary to keep inflation within target. Theoretically, this could, of course, mean action in both directions. At last inflation in other countries is stubbornly high and may increase again under unfavorable circumstances.

Essentially, the SNB has less leeway than other central banks to cut its key interest rate because it has not raised it as sharply. Therefore, if it turns out that the ECB makes several interest rate cuts and the SNB has probably already done enough to guarantee price stability, the franc may even increase in value in the long run. For now, however, the downward pressure should be maintained.

The pound weakens after the Bank of England meeting

Yesterday's meeting of the Bank of England also weakened the pound sterling. Bank kept interest rates at a high level of 5,25 percent. and the 8-1 vote was more dovish than the expected 7-1-1. Nobody supported the increase. Overall, yesterday's decision did not bring anything new. The BoE took another step towards reductions, but it is still not entirely clear whether it will happen faster than expected so far. The next meeting will probably be decisive. What's more, we will also learn new forecasts in May. If inflation continues to surprise on the downside, then sentiment may actually shift towards earlier reductions in the cost of money.

The pound lost value. EUR/GBP pair rose to its highest level since January 18. The price was above the theoretical neck line of the double low formation, which is visible on the chart showing daily data. The downward trend line connecting the peaks of November and December 2023 has been violated.

Source: Łukasz Zembik, OANDA TMS Brokers