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September 24, 2019
USD / CHF was surprised by the SNB's decision which was a bit more hawkish. The Swiss central bank is also ready to intervene in currencies if needed. The USD / CHF currency pair dropped more than 0.5 percent to around 0.9920, after the announcement of the Swiss National Bank (SNB) policy.
The Swiss Franc also strengthened sharply against the Euro. The reason, SNB conveyed a slightly more hawkish policy direction, although it also stated readiness to intervene in currencies if needed. In today's meeting, the SNB kept interest rates steady at -0.75 percent, according to analyst estimates.
However, the SNB adds to the threshold of funds that can be deposited by commercial banks without being subject to negative interest at the central bank. The regulation, which will take effect on November 1, allows banks to increase negative interest-free deposits at the central bank from 20x the minimum reserve requirement to 25x the minimum reserve requirement.
The SNB also vowed to remain active in the money market to ease the bullish pressure on the Swiss Franc which is considered as one of the safe-haven assets amid the current economic and political turmoil. They considered "the situation in the Forex market is still fragile", but only repeated the old rhetoric about the importance of low currency exchange rates for the Swiss economy.
"This shows the SNB has an optimistic view of the Swiss economy, which they say could offset the recent strengthening of the Franc, and they do not expect the ECB to cut interest rates again in the near future," said UBS economist Alessandro Bee, as reported by Reuters.
The direction of the SNB's policy contrasts with the decision of the Federal Reserve. It recently relaxed its monetary policy in the early hours of the morning. Investors and traders also react immediately to sell the Greenback versus the Swiss Franc. However, the SNB is actually still expected to maintain negative interest rates for a long time.
Speculation of currency intervention again spread amid the strengthening of the Swiss Franc against the Euro. However, the chairman of the Swiss central bank did not want to respond. Chairman of the Swiss National Bank (SNB) Thomas Jordan declined to comment on the exchange rate of the Swiss Franc which continues to strengthen.
The currency that is often called Swiss has topped the highest level of two years versus the Euro, a level that is expected to need to be intervened. Amid surging Swiss currency as a safe-haven, Jordan today led the launch of a new 100 franc banknote by the Swiss central bank, which was an overhaul of previous banknotes.
In the event, the SNB Chair did not want to respond to media questions about the strengthening of the Franc. "I will answer the question about the new 100 francs, and will not comment on our monetary policy," Jordan said.
Throughout 2019, the Franc has strengthened as much as 4 percent against the Euro. That was caused by investors who bought up the Franc as a safe haven from the US-China trade war and the slowing global economy. At the time of writing, EUR / CHF has traded at 1.08267, the lowest level since April 2017.
The trend in the currency pair has aroused speculation that the SNB will loosen its monetary policy. In fact, the SNB interest rate is now at the level of -0.75 percent. If not through interest rates, the central bank may again intervene in its currency. Apart from that, the SNB is scheduled to announce its monetary policy update on September 1.
The new banknotes issued by SNB will enter circulation. The launch of the 100 francs is the number of times after the launch of new designs for 10, 20, 50, 200 and 1000 francs in the last three years. Jordan said that although current payment methods have varied, according to him, cash is still very necessary because its existence does not depend on technology that could be disrupted.
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