(Bloomberg) -- The cost of hedging the franc overnight jumped early Wednesday by the most since the Swiss National Bank unexpectedly removed a floor for the currency in 2015.

The sharp move came ahead of the SNB’s next decision on Thursday, given market uncertainty over whether policy makers could opt to cut interest rates and signal support for the currency through intervention. That made hedging the Swiss franc the day before a SNB meeting the most expensive since 2022. 

Overnight volatility in the euro-Swiss franc pair surged to as much as 18.27%, the highest since March 2023 when global banking concerns dominated market sentiment, before paring the advance to around 15%. Now, the worries are around policy risks, with Goldman Sachs strategists pointing to the potential for SNB guidance on bolstering the franc by selling foreign currency.

Traders are also divided on whether it will act on rates. Money markets are assigning around a 70% probability that it will cut by a quarter point Thursday, while economists are roughly split on the outcome.

The move in options also reflects positioning in the spot market as short-term exposure is stretched in favor of the Swiss franc. It’s already rallied by more than 4% against the euro since late May, reaching its strongest level in four months as political turmoil in France leads investors to seek havens.

  • NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

(Updates with pricing in lead and third paragraph.)

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