Key points

USD/CHF continued trading in proximity to an over 1-month trough on Thursday, after the Swiss National Bank raised its benchmark interest rate by 0.25% to 1.75% at its June policy meeting, against market expectations of a larger hike.

The bank also noted additional rate hikes could be required in order to achieve price stability in the medium term.

Prior to the SNB’s policy decision, markets were pricing in a 62% chance of a 0.50% rate increase.

This has been the fifth consecutive interest rate hike since the beginning of the SNB’s tightening cycle last year, which brought borrowing costs to their highest level since April 2002.

Despite that Switzerland’s inflation has dropped over the past year and is currently the lowest among G10 economies at 2.2%, there still was more to be done, according to SNB Chairman Thomas Jordan.

“The marked decline in recent months is very welcome. This is also the result of our monetary policy which is now significantly more restrictive than one year ago,” the SNB Chairman told reporters.

“Nevertheless the underlying inflationary pressure has risen further,” Jordan said.

The central bank revised down its full-year 2023 inflation projection, but raised its 2024 forecast because of ongoing second-round effects, higher electricity prices and rents, along with more persistent inflationary pressure from abroad.

The bank now expects average annual inflation of 2.2% this year and in 2024, and a 2.1% inflation in 2025.

As of 9:14 GMT on Thursday USD/CHF was edging up 0.10% to trade at 0.8939.

The major Forex pair touched an intraday low of 0.8906 immediately after the SNB’s policy decision, or its weakest level since June 16th (0.8902) – also a 1-month low.

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