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CHF & SEK JUMP ON INTEREST RATE ANNOUNCEMENTS

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CHF & SEK JUMP ON INTEREST RATE ANNOUNCEMENTS

March 19 2015, 11.50am GMT

STOCK.com

Volatility for 2 currencies was felt across the board as the Swedish and Swiss central banks make interest rate announcements.

The Swiss franc [CHF] jumped against the euro, the yen, sterling and the greenback as the Swiss National Bank (SNB) announced on Wednesday that it will leave the target range for the three-month Libor unchanged at between –1.25% and−0.25%. The interest rate on sight deposits with the SNB remains at –0.75% and the exemption thresholds remain unchanged.

This decision is a follow up to the central bank’s decision in January to end the capping of the Swiss franc at 1.20 francs per euro; a policy that had been in place since 2010. At the time, the CHF toppled but is still considered overvalued, hence the option taken to maintain the negative rate. The SNB commented, ‘Negative interest helps to make it less attractive to hold investments in Swiss francs. Overall, the Swiss franc is significantly overvalued and should continue to weaken over time.’

By Thursday trading some reversals were made but bullish movements are still keeping the Swiss currency fluctuating on the markets.

In the meantime on Wednesday, the Swedish kroner [SEK] also gained rapid movement in a downward direction against the U.S dollar and the euro. Sweden is a member of the European Union but still controls its own currency.

In a surprise move, the Swedish central bank announced its decision on interest rates but this time in a negative direction. The Riksbank cut its rate by 0.15% to -0.25% alongside a new government bond-buying scheme worth 30 billion kroner. Sweden is looking to achieve higher interest rates at a 2% target but can only do this by weakening the currency to avoid deflation and raise the Consumer Price Index. The SEK has gained 5% against the euro over the last month.

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