Swiss franc soars after shock rate hike; pound rises

By Saqib Iqbal Ahmed and John McCrank

NEW YORK (Reuters) - The Swiss franc soared against the dollar and the euro on Thursday after the Swiss National Bank delivered a surprise interest rate hike, while the British pound rose after the Bank of England delivered a rate hike of its own.

The SNB joined other central banks in tightening monetary policy in its first rate hike in 15 years, increasing its policy rate to -0.25% from the -0.75% it has deployed since 2015.

The move put the Swiss franc on pace for its largest daily jump against the euro since the SNB ditched its currency peg in 2015, with the common currency tumbling 1.9% to 1.019 francs, a 2-month low.

The U.S. dollar tumbled 3.1% against the franc, on pace for its largest 1-day drop in about 6-1/2 years.

"There was always that room for surprise from the SNB, but I think most currency traders did not anticipate such an aggressive action from the SNB and it was surprising and it kind of set the tone for the dollar," said Edward Moya, senior analyst at Oanda.

Most analysts had expected the SNB to hold rates on Thursday and flag a hike for September, although a couple of banks had predicted a 25 bps move.

"This is one of those rare FX surprises where you could see significant momentum post this event as the SNB seems likely to have further aggressive rate hikes to try to stabilize inflation," Moya said.

Sterling had a volatile day, initially dropping after the Bank of England raised interest rates by 25 basis points, confounding some forecasts of a bigger hike to fight soaring inflation, before the British currency reversed course to trade up 1.42% at $1.235,its highest versus the buck since June 10.

Graphic: Swiss franc surges after SNB rate hike- https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkljoopx/CH1606.png

The BoE said it was ready to act "forcefully" in response to "indications of more persistent inflationary pressures".

EYES ON JAPAN

Against a basket of currencies, the dollar slipped 1.1% to a 3-day low of 103.66, a day after the Federal Reserve delivered its biggest rate hike in decades but then tempered its outlook by telling investors that such sharp moves higher were unlikely to become common. The index remains close to the 2-decade high of 105.79 touched on Wednesday.

"Weak risk appetite will provide some underpinning for the USD but we remain unsure of the USD's ability to gain significantly from here," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

The dollar was 1.3% lower against the yen, ahead of the Bank of Japan's two-day policy meeting that ends on Friday.

Bank of Japan is one of the rare major developed world central banks yet to flag higher rates in a tightening cycle that started late last year, but the yen's drop to multi-decade lows has given weight to the idea the central bank could give in to global market forces, opening up a slim chance for a near-term tweak in its policy.

Traders were also closely watching several ECB speakers after the central bank promised to control borrowing costs for countries on the euro zone's periphery after an emergency meeting on Wednesday.

In cryptocurrencies, bitcoin was down 2.94% to $20,993.36, a day after slipping to 18-month low of $20,076.05, amid a deepening a market meltdown sparked by crypto lender Celsius this week freezing customer withdrawals.

(Reporting by Saqib Iqbal Ahmed and John Mccrank in New York and Joice Alves in London; Editing by Catherine Evans, Kim Coghill, Mark Potter, Alison Williams and Alex Richardson)