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Sterling volatile, Norwegian crown surges and Swiss franc falls on rate hikes

Swiss franc falls, Norwegian crown surges after SNB, Norges hikes © Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Joice Alves

LONDON (Reuters) – The Swiss franc fell on Thursday after the Swiss National Bank (SNB) hiked its benchmark interest rate, while the Norwegian crown surged after a bolder Norges Bank move.

The SNB raised its benchmark interest rate by 25 basis points to 1.75%, defying some market expectations of a bigger increase.

Despite an easing in Swiss inflation, currently the lowest among G10 economies at 2.2%, SNB Chairman Thomas Jordan recently repeated his readiness to raise rates, encouraging markets to expect a 50-bps hike.

However, economists polled by Reuters had expected the SNB to hike rates by 25 bps.

“Unlike the ECB (European Central Bank) and the Fed (Federal Reserve), the SNB can proceed slowly and steadily with its monetary policy tightening,” said Thomas Gitzel, chief economist at VP Bank Group in Liechtenstein.

“With today’s interest rate hikes, the key rate and the inflation rate are converging. An interest rate hike of 50 basis points was therefore not necessary,” he added.

The Swiss franc fell 0.2% to 0.8945 against the dollar, moving away from a six-week high it touched last week.

The euro rose by as much as 0.2% to 0.9828 francs.

NORWEGIAN CROWN SURGES

The Norwegian crown surged instead after the Norges Bank raised its benchmark interest rate by 50 bps to a 15-year high, more than expected by a majority of economists surveyed by Reuters, and said it aimed for another hike in August.

In an attempt to curb inflation, Norges Bank raised interest rates to 3.75%, sending the crown more than 1% higher both against the euro and dollar.

The Norwegian crown rose 1.1% against the dollar to 10.5310, marching towards a six-week high touched last week.

Versus the euro, it rose 1% to 11.5820.

Economists polled by Reuters expected a 25 bps move, but a minority of participants in the survey predicted Norges Bank would hike by 50 bps amid higher than expected growth in consumer prices and a brighter outlook for many Norwegian companies.

Norwegian 3-year government bond yield rose 13 bps to 3.94%.

BOE NEXT

Sterling was perched near a one-year high as markets expect the Bank of England (BOE) to raise interest rates again later in the day, after UK inflation held at 8.7% in May, defying market expectations and making it the highest of any major economy.

The BoE is set to raise interest rates for a 13th time in a row, though traders are split between a 25-basis-point and 50bp hike.

Sterling flattened on the day at $1.2766.

POWELL TESTIMONY

The dollar steadied near a one-month low against a basket of currencies, after Federal Reserve Chair Jerome Powell offered little room for surprise at his semi-annual testimony to lawmakers on Capitol Hill.

In remarks to lawmakers on Wednesday, Powell said further U.S. rate increases are “a pretty good guess” of where the Fed is heading if the economy continues in its current direction.

His comments were in line with what the central bank said at its policy meeting last week.

The last stood at 102.07, not far from its recent five-week low of 102.00, after having fallen nearly 0.5% in the previous session.

Trading was thin in Asia with Hong Kong and China closed for a holiday.

The euro rose to a more than one-month high of $1.10030, extending Wednesday’s 0.65% jump.

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