The Swiss franc tumbled against the dollar and the euro on Thursday after Switzerland's central bank softened its language on the currency's valuation, though it stood firm on its ultra-easy monetary policy stance. In a nod to the euro's near 7 percent gains against the franc this year, the SNB ditched its nearly three-year mantra that the franc was "significantly overvalued" and said the currency remained highly valued.
But the central bank retained its negative interest rates and nudged its inflation forecast higher, indicating it was comfortable with the currency weakness at a time when its major counterparts such as the European Central Bank and the US Federal Reserve are unwinding years of policy stimulus. "The SNB seems content to lag well behind the ECB and Fed in the monetary cycle," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
The dollar climbed 0.3 percent against the franc at 0.9669 francs per dollar and the euro rose by a similar quantum to 1.1494 francs per euro. Josh O'Byrne, a currency strategist at Citibank said more hawkish signals from the central bank will "become more probable" only after exhibiting protracted franc weakness.
In contrast to the caution exhibited by the SNB, the Bank of England policymakers struck a relatively optimistic note at its meeting and said the first interest rate rise in more than a decade was likely needed in the "coming months" if the economy keeps growing and inflationary pressures continue to build. Sterling surged higher and short-dated yields spiked after the policy decision.
Meanwhile, the dollar consolidated gains, a day after posting its biggest single-day rise in six weeks as markets looked forward to US inflation data that will determine the near term trading outlook for the struggling greenback. With short bets against the dollar stuck near record highs despite this week's rally, any upside inflation surprise might trigger a broad-based pull-back in positioning.
"We view this dollar move higher as broadly a corrective move and now the question is how much the dollar can recover before the data," said Viraj Patel, an FX strategist at ING in London. The dollar, which slid to a 10-month low of 107.32 yen last week on worries over Hurricane Irma and North Korea, has climbed this week as risk sentiment improved and US Treasury yields edged higher.
The dollar was trading 0.1 percent lower against a broad basket of currencies at 92.416 in early trades. It rose 0.7 percent on Wednesday, its biggest daily rise since August 4, according to Thomson Reuters data. The US core consumer price index is expected to have risen 1.6 percent on an annual basis in August, which would be the lowest since early 2015, versus 1.7 percent in July. The Fed has a 2 percent inflation target, and a series of subdued price readings have dampened expectations for the Fed to raise interest rates again this year and weighed on the dollar.