The Swiss franc soared on Thursday. What caused its rise?

The Swiss franc soared today after its central bank raised its interest rate by 50 basis points. Consequently, yields on two-year bonds also rose. The Swiss National Bank seems confident that the rate hike will not seriously affect the country’s economic growth. Some analysts pointed out that keeping rates high for a prolonged period could well push the Swiss economy into recession. That is true for all countries. While experts welcomed monetary policy tightening when global central banks first started to implement it, they now worry that such policy could eventually cause some snags.

Still, the Swiss franc rallied on the news on Thursday, gaining substantially across the board. The US dollar was down 0.5% at 0.9121 francs today. The euro also plunged 0.2% to 0.9939 francs.

The Swiss government helped UBS take over rival Credit Suisse on Sunday. UBS bought the shares for just $3 billion. However, the authorities promised to back it up, agreeing to set aside $260 billion if necessary. Credit Suisse was one of the banks that ran into difficulties, while two others collapsed in the United States. However, UBS managed to mitigate the damage by acquiring the former.

Investors did not expect any major rate hikes from central banks this week due to recent turbulence caused by problems in the banking sector. However, the Swiss central bank stated that it needed to raise rates to curb runaway inflation. The yield on two-year Swiss government bonds jumped to a one-week high after the bank’s decision, hitting 1.173%.

How are emerging market currencies doing?

Emerging Asian currencies traded in the green today. They spiked after the US Federal Reserve made relatively dovish comments. The Philippine peso advanced during this session. The country’s central bank raised interest rates by 25 basis points, as expected by traders, supporting the peso. The bank also stated that inflation would likely slow down this year. In February, annual inflation fell slightly to 8.6%. Policymakers expect it to fall to 6.0% in 2023.

Nicholas Mapa, a senior economist at ING, noted that Governor Medalla has already hinted that his next policy decision would depend on data. In addition, he also stated that external events, such as the movements of the Federal Reserve, would also influence his decision, but would not be key factors.

On Thursday, the Singapore dollar rose 0.4%. It stayed on track for its sixth consecutive session of gains. However, the local benchmark index fell 0.1%. However, the South Korean won gained the most today. It shot up by more than 2%. At the same time, the Malaysian ringgit added 0.9% and the Thai baht rose 0.3%.