The Swiss National Bank decision to leave interest rates on hold will curb near-term franc demand and is also likely to have a wider negative impact on continental European currencies.
The Swiss currency resisted a further test of support close to 1.62 against the Euro on Wednesday, strengthening to around 1.6100, while the franc also strengthened to 1.04 against the dollar.
The National Bank left interest rates on hold at 2.75% following the latest quarterly council meeting. The bank left growth forecasts broadly unchanged while the inflation forecasts were increased. There was a discussion as to whether rates should be increased, butt his option was rejected with the bank warning that it could decide on an increase at the September meeting.
The bank's reluctance to increase rates despite the higher inflation forecasts is likely to spark some speculation that the bank is more concerned over the state of conditions within the economy. This caution will dampen near-term franc support, especially as there had been some speculation over an increase in rates. There is also likely to be a slight downgrading of European interest rate expectations and a dip in confidence. Weaker global stock markets will still provide near-term currency support and volatility is liable to increase over the next few days.