SNB and BoE Hike Rates, but BoJ Stays Ultra Loose

6 min readJun 17, 2022

Yesterday and today in Asia, three more central banks took center stage, and those were the SNB, the BoE and the BoJ. The SNB surprised the markets and hiked by 50bps, at a time when the consensus was for no change, while the BoE raised interest rates by 25bps, as was broadly expected. Today, during the Asian session Friday, the BoJ maintained its ultra-dovish stance, widening further its monetary policy divergence with the rest of the world.

SNB Surprises the Markets, Lifting Rates by 50bps

The US dollar traded lower against all but one the other major currencies on Thursday an during the Asian session Friday, with the Swiss franc and the British pound being the main gainers, and the Aussie and the yen being the currencies that gained the least. The only currency against which the greenback managed to record some gains was the Canadian dollar.

This past week was a central bank week, with the Fed and the ECB holding meetings on Wednesday (ECB’s gathering was an ad-hoc one), the SNB and the BoE deciding on policy yesterday, and the BoJ announcing its own decision today. The Fed lifted rates by 75bps, while the ECB discussed “fragmentation” risks, but we talked and analyzed those outcomes in more detail in yesterday’s daily report. So, today, we will discuss the SNB, the BoE and the BoJ decisions.

Getting the ball rolling with the SNB, this Bank surprised the financial world with its decision to lift interest rates by 50bps, from -0.75% to -0.25%. The consensus was for officials to keep interest rates untouched. This was the SNB’s first rate hike in 15 years, with policymakers noting that they are ready to continue pushing that hike button. They also dropped the reference saying that the Swiss franc is highly valued. Therefore, the unexpectedly hawkish outcome lifted the Swiss franc against all the other major currencies. So, now the SNB has joined the hawkish chorus, depending on how fast they are planning to move ahead, the Swiss franc could outperform some of its major peers. For now, we see as a better gauge to exploit any further franc gains, the CHF/JPY pair. This is because, overnight, the BoJ maintained its ultra-loose policy, staying as the only dovish major central bank. We will discuss that outcome in a while.

BoE Hikes by 25bps, but Signals Readiness to Do More if Needed

Now flying from Switzerland to the UK, there, the BoE hiked interest rates by 25bps as was widely anticipated, confirming the notion that it will follow a slower rate-hike path than most of the other major central banks. That’s maybe why we saw the British pound falling instantly at the time of the release. However, officials said that they are ready to act “forcefully” if deemed necessary, with market participants lifting their pricing up. They now see interest rates at 3% by year end, expecting at least 50bps at each of the September and October meetings. In our view, this explains the pound’s strong rebound in the aftermath, and the fact that it was found as the second winner in line during the early European morning today.

Having said all that though, we are reluctant to call for a trend reversal in the pound. The Bank itself warned that the economy may have contracted in the second quarter, and thus, more data revealing an ugly picture could prompt market participants to scale back their hike bets, and thereby result in another round of selling in the British currency. For now, we will treat yesterday’s recovery as a corrective move.

GBP/CHF — Technical Outlook

GBP/CHF fell sharply yesterday, after the SNB hiked rates by 50bps, breaking below the key support (now turned into resistance) territory of 1.1980. That zone acted as a floor between May 24th and June 15th. The rate hit support at 1.1800 and rebounded, but remained below the 1.1980 area, and thus, we would see decent chances for the bears to take charge again at some point soon.

Traders of this pair may decide to challenge the 1.1980 zone as a resistance this time, and then allow another round of selling and another test at 1.1800. If that barrier gets broken, then a forthcoming lower low will be confirmed and we may experience extensions towards the low of December 11th, 2020, at around 1.1680. Another dip, below 1.1680, could extend the fall towards the 1.1595 zone, marked by the low of September 11th.

On the upside, we would like to see a clear rebound back above 1.2130 before we start examining whether the bulls have gained full control. Such a move will confirm a forthcoming higher high and may initially pave the way towards the high of June 9th, at around 1.2290. Another break, above 1.2290, could carry more bullish implications and may see scope for advances towards the peak of May 17th, at around 1.2445.

BoJ Stays as the only Dovish Major Central Bank

Last but not least, we have the BoJ. In contrast to the other major central banks, this one maintained its ultra-loose monetary policy, as well as its guidance to keep borrowing costs at “present or lower” levels. This widens even further the monetary policy divergence between the BoJ and other major Banks and leaves the yen vulnerable to further declines. However, although we do expect the yen to continue weakening, we will be very careful form now onwards, as the central bank said it must “closely watch” the impact of the exchange moves on the economy. So, we cannot rule out some form of intervention in the foreseeable future.

EUR/JPY — Technical Outlook

EUR/JPY traded higher, but the advance was stopped near the 141.50 territory, which provided strong resistance on June 15th. Although we do see the case for further advances, also based on the rediscussed fundamentals, we would like to see a clear break above 141.50 before we get more confident on that front.

A clear and decisive break above 141.50 could signal extensions towards the 144.20 zone, marked by the highs of June 8th and 9th. That said, if the bulls are not willing to stop there, then we may see them climbing towards the 147.20 territory, marked by the high of December 29th, 2014.

The outlook could turn negative again, upon a break below 137.80, which is the low of June 16th. This will confirm a forthcoming lower low and could initially target the low of May 31st, at around 136.80. If that barrier is also broken, then we may experience extensions towards the 135.20 territory, marked by the low of May 26th, the break of which could pave the way towards the low of May 19th, at around 133.90.

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