Interest rate hikes: Central banks follow suit

DThe renewed increase in key interest rates by 0.75 percentage points by the American central bank has given further impetus to the dollar's buoyancy. The dollar index, which tracks rates against major currencies, rose to 111.79 points on Thursday, a 20-year high. At the beginning of 2002, the index was at more than 120 points. This had been the most recent surge in the world's most important currency, which began in 1995 and ended in 2002. The dollar's highest level since the collapse of the Bretton Woods system of fixed exchange rates in the 1970s was more than 165 points in the mid-1980s.

Patrick Welter

Correspondent for business and politics in Japan based in Tokyo.

In turn, the euro depreciated to $0.981, its lowest level since October 2002. "What else is there to buy but the dollar right now," asked rhetorically Sally Auld, chief investor at wealth manager JB Were. "The Fed will not stop raising interest rates in the foreseeable future." The central bank had made this clear the previous evening. Other stockbrokers also referred to the attractiveness of the dollar as a "safe investment haven" against the background of the looming recession in Europe, the weakening Chinese economy and the ongoing war in Ukraine. The dollar is the only game in town, according to TD Securities. As expected, the German stock market opened on Thursday with significant discounts.

Switzerland also increased

In Switzerland, the period of negative interest rates is coming to an end after almost eight years. the Swiss National Bank (SNB) will increase key interest rates by 0.75 percentage points to 0.5 percent starting this Friday. "In this way, we are counteracting the renewed increase in inflationary pressure and making it more difficult for goods and services to spread to goods and services that have so far been less affected by inflation," said SNB President Thomas Jordan. "It cannot be ruled out that further interest rate hikes will be necessary to ensure price stability in the medium term," Jordan added.

Inflation in the Switzerland was 3.5 percent in August. Although that is significantly less than in the euro zone, it is still well above the target corridor of 0 to 2 percent, which means price stability for the SNB. In June, the National Bank had already increased the key interest rate, which had been a record low of minus 0.75 percent since the beginning of 2015, by half a percentage point. The SNB is now anticipating inflation of 3.4 percent for the fourth quarter of 2022.

One of the reasons for the comparatively low inflation is the strength of the Swiss currency. You currently only get 0.96 francs for one euro. The strong Swiss franc makes imports into Switzerland cheaper and thus slows down inflation. In addition, Switzerland benefits from the fact that a large part of the electricity comes from domestic hydro and nuclear power.

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