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By Tom Westbrook and Alun John
SINGAPORE/LONDON (Reuters) -The franc weakened on Thursday after Switzerland became the first developed economy to cut interest rates this cycle, underscoring investors’ view that global rate cuts are coming soon and lifting shares around the world to record highs.
Gold prices and share benchmarks in Japan and Europe had already followed the S&P 500 to all-time peaks earlier on Thursday after the Federal Reserve indicated it would stick with its plans to cut interest rates this year.
The Bank of England wraps up a bumper week for global central banks later in the day but is expected to keep rates steady.
The Swiss National Bank cut its main interest rate by 25 basis points to 1.50%, a surprise move which caused the currency to weaken. The euro rose by as much as 1.2% to 0.978, its highest since July 2023, and the dollar gained around 1% to 0.8963 francs.
The Swiss benchmark index was up 1% outperforming a 0.6% gain in Europe’s STOXX 600 index, though the broad European benchmark is already at record highs. Swiss bond yields fell.
“We’ve watched with great interest Powell’s speech and the SNB today, and it broadly validates the narrative that, although we had a bit of heat in some inflation prints and services inflation, overall central banks are in a relatively comfortable spot,” said Samy Chaar, chief economist at Lombard Odier.
“The area where it was most comfortable is Switzerland because inflation is constrained, and let’s keep in mind they had to revise significantly down their inflation forecast,” he said, referring to the Swiss central bank.
U.S. Federal Reserve Chair Jerome Powell said on Wednesday recent high inflation readings had not changed the underlying “story” of slowly easing price pressures as the central bank stayed on track for three interest rate cuts this year and affirmed that solid economic growth will continue.
The Fed left U.S. rates on hold between 5.25% and 5.5% on Wednesday, as expected, and market pricing currently reflects expectations that the Fed and the European Central Bank will start cutting rates at their June meetings.
U.S. S&P 500 futures were up 0.3% pointing to further gains on Thursday, after the benchmark hit a new record high Wednesday. Earlier, Japan’s Nikkei and Taiwan weighted index each climbed 2% to record levels. [.T] [.N]
U.S. Treasuries rallied on Wednesday before steadying with two-year yields last 4.583% and 10-year yields at 4.235%. [US/] European bonds also rallied with Germany’s 10 year yield down 4 basis points at 2.39%. pUS/]
Lower yields also helped non-yielding gold rise to a fresh record high of $2,222.39 an ounce, and was last trading just below that, up 0.8%. [GOL/]
CARRY ON
In foreign exchange markets, the dollar dipped on prospects of U.S. rate cuts, before rebounding, though that bout of weakness briefly helped Japan’s yen recover from near multi-decade lows to 150.27 per dollar.
The yen was last at 151.1 per dollar, flat on the day, with the euro down 0.18% at $1.0902.
The pound was steady at $1.2275 ahead of a Bank of England meeting, at which the central bank looks set to keep its cards close to its chest on Thursday and not speed up its progress towards cutting interest rates.
With foreign exchange volatility at around two-year lows, however, traders say the dollar can still draw support from interest rates that are higher than peers, at least for now.
“One of the bigger carry stories is probably the dollar itself,” said Patrick Hu, a G10 currency trader at Citi in Singapore, who focuses on yen.
“The lack of geopolitical headlines or big news is leading to good carry trades that have been popular since the start of this year, in the absence of a bigger trading theme out there.”
Brent crude futures, up 5.6% in little more than a week on supply concerns were steady at $85.82 a barrel. [O/R]
Iron ore futures – down some 20% this year in Singapore on worries about China’s growth and demand – are staging a bit of a rebound and analysts at ANZ said the market might be finding a bottom. [IRONORE/]
(Editing by Sam Holmes and Miral Fahmy)
Disclaimer: This report is auto generated from the Reuters news service. ThePrint holds no responsibilty for its content.