Dollar reverses higher after surprise decision by Swiss National Bank
The dollar turned to gains in European trade on Thursday against a basket of major rivals after an earlier slip under pressure from the recent Federal Reserve’s policy meeting.
The sudden about-face came after the Swiss National Bank surprised the markets with a 0.25% interest rate cut in the first step towards easing monetary policies as inflation fell below targets.
Now investors await a batch of important US data later today to help gauge the likely path ahead for US interest rates this year.
The Index
The dollar index rose 0.3% to 103.66, with a session-low at 103.17, after closing down 0.4% yesterday, the first loss in five days, away from three-week highs at 104.15.
The dollar lost ground yesterday after the Federal Reserve sounded more bearish than expected in its policy statement this week.
The SNB
The Swiss National Bank surprised the markets today with a 0.25% interest rate cut to 1.5%, while most analysts expected no change in policies.
The decision comes as Swiss inflation hit 1.2% in February, the ninth month in a row of sub 2% inflation rates.
The Fed
As expected, the Federal Reserve maintained interest rates unchanged at 5.5%, a 2002 high, for the fifth meeting in a row.
The Fed said that recent indices showed that US economic performance is still strong, with high employment gains and weakening inflation, although it remains high.
Fed Chair Jerome Powell said the FOMC members are committed to bringing inflation to the 2% target, noting that inflation while slowing is still above the target.
He added that US inflation remains high and the Fed is paying attention to it, and that higher inflation than expected in February didn’t change the Fed’s outlook.
He added that if the US economy performed as expected, it could be appropriate to start cutting rates this year.
US Rates
Following the Fed’s meeting, the odds of a 0.25% interest rate cut in June surged to 75%.
Important Data
Now investors await a batch of important US data later today, including unemployment claims and manufacturing and services PMI data.
Franc is worst performing G8 currency after SNB rate cut
The Swiss franc tumbled in European trade on Thursday against a basket of major rivals, plumbing four-month lows against the dollar and becoming the worst performing G8 currency after the SNB surprised the markets with a rate cut.
That makes the Swiss National Bank the first major G8 bank to start easing monetary policies as inflation falls below 2%.
USD/CHF
USD/CHF rose 1.2% to 0.8974, the highest since November 2023, after closing up 0.15% on Wednesday, the first profit in six days after the Federal Reserve’s policy meeting.
Worst Performing Currency
The franc is the worst performing G8 currency today, with a 1.2% drop against the US dollar, plumbing four-month lows, and a 1% drop against the euro, hitting eight-month lows.
It fell 1.1% against the pound to 1.1459, a nine-month trough, and it fell 1.2% against the yen, and 1.25% against the Canadian dollar, and 1.6% against the Australian dollar, plumbing six-month lows at 1.6859.
The SNB Surprises Markets
The Swiss National Bank surprised the markets today with a 0.25% interest rate cut to 1.5%, while most analysts expected no change in policies.
The decision comes as Swiss inflation hit 1.2% in February, the ninth month in a row of sub 2% inflation rates.
The SNB said that cutting rates has become possible as efforts to combat inflation in the 2-⅕ years beared fruit.
Thomas Gordon
SNB Governor Thomas Gordon said it’s likely that inflation will remain at target levels in the next few years.
He said that measures taken to control inflation have proven effective, with the central bank open to change policies once more if needed.
Gold surges above $2200 for first time in history
Gold prices rallied on Thursday for the second straight session above $2200 an ounce for the first time ever as the dollar and US treasury yields lost ground, with the Federal Reserve taking a more bearish stance than expected in its policy statement.
Despite the upside inflation results, the Fed maintained its forecasts for three interest rate cuts this year, bolstering the case for a June rate cut.
Gold Prices
Gold prices rose 1.7% to $2222 an ounce, a record high, after rallying 1.3% yesterday, the biggest profit since March 4 following the Fed’s policy meeting.
The Dollar
The dollar index fell 0.2% on Thursday on track for the second straight loss, plumbing a week trough at 103.17 against a basket of major rivals.
US 10-year treasury yields dropped by 0.5% and extended losses for the third straight session, hurting investments on the dollar.
The developments came as traders changed their bets on the timing of the first Federal Reserve interest rate cut, likely in June.
The Fed
As expected, the Federal Reserve maintained interest rates unchanged at 5.5%, a 2002 high, for the fifth meeting in a row.
The Fed said that recent indices showed that US economic performance is still strong, with high employment gains and weakening inflation, although it remains high.
The Fed said that any changes for interest rates will require careful examination of inflation data and upcoming risks.
It asserted it won’t cut interest rates until further confidence is gained about reaching the 2% inflation target.
Economic Outlook
The Fed’s quarterly economic outlook report included important revisions:
For growth, the Fed changed its outlook for 2024 growth from 1.4% to 2.1%, and for 2025 growth from 2.0% to 1.8%, and for 2026 growth from 2.0% to 1.8%.
For main inflation, the Fed maintained its 2024 inflation forecast at 2.4%, and the 2025 forecast at 2.2%, and the 2026 forecast at 2.0%.
As for core inflation, the Fed changed its 2024 forecast from 2.4% to 2.6%, and the 2025 forecast is still at 2.2%, and the 2026 forecast is still at 2.0%.
Finally, the Fed maintained its interest rate targets this year at 4.75%, and at 4.0% next year.
Powell
Fed Chair Jerome Powell said the FOMC members are committed to bringing inflation to the 2% target, noting that inflation while slowing is still above the target.
He added that US inflation remains high and the Fed is paying attention to it, and that higher inflation than expected in February didn’t change the Fed’s outlook.
He added that if the US economy performed as expected, it could be appropriate to start cutting rates this year.
US Rates
Following the Fed’s meeting, the odds of a 0.25% interest rate cut in June surged to 75%.
The SPDR
Gold holdings at the SPDR Gold Trust rose 1.15 tonnes yesterday, the fourth increase in a row, to a total of 838.5 tonnes, the highest since February 14.