Introduction
The US dollar has been experiencing a losing streak for the past few days as the Federal Reserve hinted at the end of interest rate hikes. The Swiss franc, on the other hand, has risen after its central bank raised rates. This article will delve into the details of these developments and their implications on the economy.
Federal Reserve Drops Language about Ongoing Increases
The Federal Reserve has raised its benchmark funds rate by 25 basis points, which was expected by the market. However, it dropped language that had previously stated “ongoing increases” were necessary. Instead, it used the phrase “some additional” rises, indicating that it is watching how the wobbling confidence in banks affects the economy.
The Fed has been raising rates since December 2015 in a bid to prevent the economy from overheating. However, recent data suggests that inflation has been subdued, and the economy is showing signs of slowing down. The central bank is now looking to balance the need for higher interest rates with the need to keep the economy growing.
Futures Show Limited Likelihood of Further Hikes
Despite the Fed’s indication that there may be some additional rate hikes, futures imply that there is only around a 50% chance of one more quarter-point hike. In contrast, European markets see around 50 basis points of further tightening.
This discrepancy is partly due to the fact that the European Central Bank has yet to raise rates, unlike the Fed, which has been steadily increasing rates for the past few years. The market is also uncertain about the impact of the ongoing trade war between the US and China on the economy.
Swiss Franc Rises After Central Bank Hikes Rates
While the US dollar is experiencing a decline, the Swiss franc is rising after its central bank raised rates. The Swiss National Bank (SNB) raised its policy rate to -0.75% from -1.25% on Thursday, citing a stronger economy and inflation that is close to its target.
The SNB’s move is in stark contrast to other central banks, which are taking a more cautious approach to rate hikes. The Bank of Japan and the European Central Bank, for example, have yet to raise rates and are expected to keep rates low for the foreseeable future.
Conclusion
The US dollar is experiencing a decline as the Federal Reserve indicates that it may be close to ending interest rate hikes. The Swiss franc, on the other hand, is rising after its central bank raised rates. The market is uncertain about the impact of the ongoing trade war between the US and China on the economy, and this uncertainty is reflected in futures markets. The Swiss National Bank’s move to raise rates is in contrast to other central banks, which are taking a more cautious approach to rate hikes.
