World stocks fell for a fifth straight session, the dollar hit its strongest since March, and the Swiss franc tumbled on Thursday as the latest crop of central bank interest rate moves continued to produce surprises. European equities stumbled after the U.S. Federal Reserve had signaled that it probably had at least one more hike in the tank after its historically rapid rate run-up over the last 18 months. Currency dealers were caught off guard when the Swiss National Bank surprised markets by scrapping its three-year-old peg of 1.20 francs to the euro. The franc rose above parity with the euro before retreating, pushing past 1.05 francs against the dollar.
The euro was also under pressure as inflation cooled in France and Germany’s biggest states, easing expectations that the ECB would continue to raise interest rates. Earlier, Australia’s Reserve Bank kept rates on hold, leaving the door open to further rises. Commodities were also lower, with copper and WTI crude oil dropping as the dollar climbed to fresh peaks. “The market is expecting further monetary tightening by the Fed and the ECB, and that is driving up the real yield of government bonds,” said Carl Hammer, chief strategist at European bank SEB. “That, in turn, is pushing up the price of the yen and helping the dollar.”
Investors are awaiting Friday’s policy decision by Japan’s central bank, which is expected to keep rates on hold at its first meeting under new governor Haruhiko Kuroda. Analysts expect the yen to find support at above 100 yen per dollar. “We do not see the yen getting stronger for now until the central bank has shown it is ready to push interest rates up in line with a more robust recovery,” said Hong Kong-based HSBC analysts.
Elsewhere, sterling slipped to fresh multi-month lows after the U.K.’s unexpectedly soft inflation report sparked doubts that the Bank of England will follow its U.S. peer in hiking rates later on Thursday. The pound also lost ground against the euro as concern over the political crisis in Italy increased. Australia’s AUD was also under pressure as investors grew more cautious on the back of weak Chinese data. The AUD was weaker against the dollar and the euro as the stronger greenback made it more expensive for foreign buyers to purchase Australian goods. The Australian economy is heavily dependent on exports.