Today the SNB hiked their target 3-Month LIBOR bands but downwardly revised their inflation targets. Markets had priced in a 25bp hike in Q4 but those who had looked for a more aggressive 50bp move looked disappointed in the wake more "gradual" move.
The Franc had looked supported into the release but in the wake of the more moderate increase and the cutting of the 2007 outlook from +1.1%, to just +0.4%, the CHF was sold. USD/CHF rallied into the 1.21's to remove stops all the way up to the 1.2131 intraday high while EUR/CHF finally broke its recent range top. Bulls here now cast an eye on the 1.6000 level after the SNB Vice-Chairman, Hildebrand, noted that carry trades play little part in the EUR/CHF rates.
Roth, however, was more reflective on FX; suggesting real exchange rates remain at close to their 2000 level. The CHF may be in for a torrid ending to 2006 but some remain upbeat on the potential for one last rate hike (Q1 2007) before the Swiss central bank moves into a pause period.
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