USD/CHF spikes towards 0.8970 after SNB announced 25 basis point rate cut

• USD/CHF gains ground following the SNB's decision to reduce interest rates by 25 basis points on Thursday.
• The Swiss National Bank (SNB) has chosen to reduce interest rates in response to the significant declines in both inflation and growth over the past year.

He USD/CHF has recovered from intraday losses and has moved into positive territory, soaring more than 100 pips, following the decision of the Swiss National Bank (SNB) to cut interest rates by 25 basis points (bp), up to 1.50%, at its March meeting held on Thursday. Consequently, the USD/CHF pair trades higher around 0.8970 during the European session, rising 1.12% on the day.

The SNB has reduced interest rates due to significant declines in both inflation and growth over the past year. The Swiss National Bank (SNB) forecasts average inflation of 1.9% in 2024. Currently, the inflation rate is noticeably lower than this forecast, standing at 1.2%. However, in February there was a significant increase in the Consumer Price Index (CPI), which rose 0.6% compared to the 0.2% increase in the previous month.

The Federal Reserve now foresees an increase in the long-term interest rate, going from 2.5% to 2.6%. However, despite the Fed's optimistic growth expectations, the markets do not seem to take these forecasts into account, which has caused the value of the US Dollar (USD) to fall.

The DXY Dollar Index is around 103.30 points, mainly influenced by the weakness of US Treasury yields. The coupon yields of the 2-year and 10-year bonds have fallen to 4.59% and 4.25%, respectively. This decline is attributed to the US Federal Reserve (Fed) reaffirming expectations of three interest rate cuts this year.

Although the Federal Open Market Committee (FOMC) forecasts stronger growth throughout 2024 and 2025 than initially anticipated, investor sentiment indicates expectations of additional easing measures in 2024.