Even if this was the "expected" decision, the feel of the market was that it was closer to a coin flip. That explains the reaction in the Swiss franc, with the SNB also sticking with a more dovish stance overall. The Swiss central bank signaled that inflation is easing further, having lowered their projections on that in today's statement.
The franc has fallen as a result, with USD/CHF rising back up by 0.5% now to 0.8887 on the day:
The pair is now running back up to test its 200-day moving average (blue line) at 0.8895. Keep below and sellers will still be poised to hold the downside momentum. But break above, and buyers will start to wrestle back some control after the downside draft this month.
It's a bit of a tough one to figure out what the SNB wants to do now.
On the one hand, the decision today keeps in play another rate cut in Q3 this year. But as evident from the trend in sight deposits data and comments by SNB chair Jordan that a weaker franc is the most likely source of higher inflation, they may be looking to keep a lid on any outright weakness in the currency.
As such, traders have to balance that out. But amid looming political risks in Europe in general, I myself am leaning towards fading the drop in the franc. The risk to that is as per the technical levels outlined above.
