Swiss franc strengthens after SNB hikes rates by 50 bps

The Swiss franc strengthened on Thursday while two-year bond yields rose after the Swiss National Bank raised its main interest rate by 50 basis points, underlining a clear separation of the monetary policy path from financial stability.

The Swiss franc strengthened across the board, with the euro down 0.2% at 0.9939 francs and the dollar down 0.5% at 0.9121 francs.

On Sunday, Swiss authorities orchestrated a $3 billion deal for UBS to buy rival Credit Suisse (CSGN.S), backed by a massive guarantee of up to $260 billion in state and central bank support.

But with inflation still high, the SNB decided further rate hikes would be required to curb inflation.

Two-year Swiss government bond yields rose to one-week highs at 1.173% after the rate decision.

The Swiss bond market has been unusually volatile this week, as markets grappled with the fallout of the Credit Suisse-UBS deal (CSGN.S).

On Tuesday, two-year Swiss yields closed over 60 bps higher on the day, marking their biggest one-day jump since early 1995.