By Joice Alves
LONDON (Reuters) – Sterling was volatile, the Swiss franc fell and the Norwegian crown surged on Thursday after Bank of England (BoE), the Swiss National Bank (SNB) and Norges Bank all hiked their benchmark interest rates.
The BoE’s Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5% from 4.5%, its highest since 2008 and its largest rate increase since February.
After inflation data held at 8.7% in May, defying market expectations and making it the highest of any major economy, investors were split on how big the new BoE hike would be.
Economists polled by Reuters last week were unanimous that the BoE would raise rates to 4.75%, their highest since 2008, from 4.5%.
Sterling initially rose to a day high of $1.2845 after the rate hike, but at 1200 GMT, it flattened on the day against the dollar at $1.2775 as investors worried about growth prospects in the UK.
Against the euro, it fell to an almost three-week low, last down 0.1% on the day at 86.07 pence.
“The BOE continues to get it very wrong. Raising the cost of money when growth is at virtually zero, and inflation is being caused by factors outside of consumption control, is a recipe for disaster,” said Paul Oberschneider, CEO at Hilltop Credit Partners in London.
Alex Livingstone, Head of Trading & FX at Titan Asset Management said with terminal rates now being priced at over 6% investors will be wondering how surging cost of borrowing will impact the housing market and subsequent UK economic growth.
SWISS FRANC
The Swiss franc fell after the Swiss National Bank (SNB) hiked its benchmark interest rate by 25 basis points to 1.75%, defying some market expectations of a bigger increase.
Despite an easing in Swiss inflation, currently the lowest among G10 economies at 2.2%, SNB Chairman Thomas Jordan recently repeated his readiness to raise rates, encouraging markets to expect a 50-bps hike.
However, economists polled by Reuters had expected the SNB to hike rates by 25 bps.
“Unlike the ECB (European Central Bank) and the Fed (Federal Reserve), the SNB can proceed slowly and steadily with its monetary policy tightening,” said Thomas Gitzel, chief economist at VP Bank Group in Liechtenstein.
The Swiss franc fell 0.15% to 0.8942 against the dollar, moving away from a six-week high it touched last week.
NORWEGIAN CROWN SURGES
The Norwegian crown, on the other hand, surged after the Norges Bank raised its benchmark interest rate by 50 bps to a 15-year high, more than expected by a majority of economists surveyed by Reuters, and said it aimed for another hike in August.
In an attempt to curb inflation, Norges Bank raised interest rates to 3.75%, sending the crown more than 1% higher both against the euro and dollar.
The Norwegian crown rose 1.15% against the dollar to 10.5270, marching towards a six-week high touched last week.
Versus the euro, it rose 1% to 11.5860.
Economists polled by Reuters expected a 25 bps move, but a minority of participants in the survey predicted Norges Bank would hike by 50 bps amid higher than expected growth in consumer prices and a brighter outlook for many Norwegian companies.
POWELL TESTIMONY
The dollar steadied near a one-month low against a basket of currencies, after Federal Reserve Chair Jerome Powell offered little room for surprise in remarks at his semi-annual testimony to lawmakers on Capitol Hill.
The U.S. dollar index edged 0.1% higher at 102.07, but stood not far from its recent five-week low of 102.00.
Trading was thin in Asia with Hong Kong and China closed for a holiday.
The euro rose to a more than one-month high of $1.10030, extending Wednesday’s 0.65% jump.
