Pound, franc slide as central banks pause hikes; dollar holds firm By Reuters

By Samuel Indyk

LONDON (Reuters) – The pound and Swiss franc tumbled on Thursday after the British and Swiss central banks kept rates unchanged, while the dollar hit a 6-1/2 month high after the U.S. Federal Reserve signalled policy would remain restrictive for longer.

The yen, meanwhile, was at its lowest since November before Friday’s Bank of Japan policy announcement, while central banks in Sweden and Norway both met expectations for 25 basis point rate rises.

The Bank of England halted a run of 14 consecutive rate hikes by voting with a narrow 5-4 margin to keep its Bank Rate at 5.25%, the first time since December 2021 it has not raised rates.

The pound sank to its lowest since March, falling as low as $1.2231 before finding support and settling around $1.2270. Sterling also fell against the euro with the single currency last buying 86.7 pence.

“The Bank has shown time and again that it is placing a higher weight on lagged policy effects, the level of rates, and a more even-handed approach with an aversion to over-tightening,” Goldman Sachs strategists, led by Michael Cahill, said.

“That may ultimately provide more protection for economic activity, but it comes at the expense of leaving sterling more vulnerable.”

Earlier, the Swiss franc dropped after the Swiss National Bank unexpectedly held rates steady, marking the first time the central bank has not hiked since March 2022, although it kept options open for further rate rises.

The euro rose as high as 0.9677 francs and is set for its biggest one-day rise since June. The dollar rose 0.8% to 0.9053 francs, hitting its highest level since June 13.

“The Swiss franc has understandably weakened after the surprise hold in the policy rate today,” ING strategists said in a note.

“However, the SNB has said that it will still be using the exchange rate to “provide appropriate monetary conditions” and to do this will likely continue to sell FX.”

Meanwhile, Sweden’s Riksbank and Norway’s central bank both raised rates by 25 basis points, in line with expectations.

The euro was up 0.3% against the Swedish crown and 0.1% against the Norwegian crown following the respective decisions.

DOLLAR HOLDS FIRM AFTER FED

The Fed held interest rates steady at the 5.25%-5.50% range, in line with market expectations on Wednesday, but it stiffened a hawkish monetary policy stance that its officials increasingly believe can succeed in lowering inflation without wrecking the economy or leading to large job losses.

Along with another possible rate hike this year, the Fed’s updated projections show significantly tighter rates through 2024 than previously expected.

“They were more hawkish further out on the curve with the dot plots signalling just 50 basis points of cuts in 2024,” said Niels Christensen, chief analyst at Nordea.

“The dollar should be well supported toward the end of the year or until we start seeing softer data.”

The , which measures the currency against a basket of rivals, rose as high as 105.68, its strongest since early March, before settling around 105.57.

The euro stood at $1.0643 after falling to a six-month low of $1.0617.

The Japanese yen was feeling the heat after the Fed meeting, hovering around 147.895 per dollar after touching a nearly ten-month low of 148.465 earlier on Thursday.

Even as the yen has slipped back toward levels seen at the end of last year, the possibility of the Bank of Japan tightening policy at Friday’s meeting remains slim.

“It seems unlikely the BOJ will announce any change of policy tomorrow, or soon for that matter. Although you never know for sure with this central bank,” said Matt Simpson, senior market analyst at City Index.

Both the Australian and New Zealand dollars took a hit following the Fed’s meeting, with the Australian currency last down 0.7% and the NZ dollar falling 0.3%, although the latter found some support after data out on Thursday showed the economy grew more than expected in the second quarter.