The US Dollar (USD) weakened overnight as the Federal Open Market Committee (FOMC) left its key interest rate unchanged at 0.50% and pared the outlook for more rate hikes this year. The market expectation is now that there will likely only be two 0.25% rate hikes this year, down from December’s prediction of four.
Whilst the Federal Reserve acknowledged that the US economy was expanding at a moderate pace, economic projections were downgraded with Real GDP forecast at 2.2% this year down from earlier predictions of 2.4%. The Federal Reserve acknowledged the growing risks of a weakening global economic outlook.
Today the market will focus on interest rate decisions from the Swiss National Bank (SNB) at 08:30, Norges Bank (Central Bank of Norway) at 09:00 and the Bank of England (BoE) at 12:00.
Opinions on what the SNB will do today are divided. There are some expectations that in response to the European Central Bank’s (ECB) easing the SNB might cut the range of its 3 month LIBOR rate to -0.50% and -1.50% from the current -0.25% and -1.25% range. However, as EUR/CHF is held well inside recent range and the ECB have ruled out more rate cuts, the pressure on the SNB to deliver lower rates today is limited so the SNB might opt to hold rates at current levels. Nonetheless, the SNB could have a dovish tone in the accompanying statement. EUR/CHF currently trades @ 1.0990, USD/CHF @ 0.9745 and GBP/CHF @ 1.3920.
The Norges Bank today is forecast to cut its key rate by 0.25% to 0.50% and the rate outlook is also likely to be revised down. EUR/NOK currently trades @ 9.46, USD/NOK @ 8.39 and GBP/NOK @ 11.99.
The Bank of England is expected to hold rates at 0.50% and its asset purchase facility at £375bn. It is unlikely the Bank of England will tighten its monetary policy in advance of the UK referendum on whether Britain should remain in the European Union due June 23rd. The prospect of a possible BREXIT means that the Pound is likely to remain under pressure and prevent any significant gains in the Pound. GBP/USD currently trades @ 1.4273, GBP/EUR @ 1.2660 (0.79p) and GBP/JPY @ 159.32.
Yesterday 05/11 the Pound tumbled in value following the Bank of England’s latest report which downgraded both the UK growth and inflation forecast and subsequently pushed out market expectations of a Bank of England interest rate rise. The Pound fell over 1% against all major currencies with GBP/EUR falling from 1.4199 to 1.3966 and GBP/USD falling from 1.5401 to 1.5203.
This afternoon 06/11 the US Dollar has appreciated strongly, more than 1%, following overwhelmingly strong US employment data. The US Dollar appreciated strongly against the Euro forcing EUR/USD down from an earlier high of 1.0892 to a low of 1.0707. The US Dollar also appreciated against the Pound with GBP/USD falling from 1.5219 to 1.5030. The US Dollar also appreciated against the Swiss Franc with USD/CHF appreciating from 0.9946, through parity to 1.0065. With the US Dollar appreciating more against the Euro than the Pound, GBP/EUR recovered from 1.3896 to 1.4065.
There is lots of global economic data due for release next week and we also have speeches from Bank of England Governor Mark Carney and ECB President Mario Draghi on Wednesday 11/11 which both have the potential to move the market.
Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for further information or for a live
The Swiss National Bank (SNB) shocked financial markets on Thursday by scrapping a 3 year old cap on the Franc (CHF), sending the Franc soaring against the Euro (EUR). At one stage the Franc had appreciated nearly 30% in value against the Euro, with EUR/CHF falling from 1.2011 to 0.8597 before recovering nearly 15% back to 1.01. The Franc also dropped dramatically against the US Dollar (USD) with USD/CHF falling from 1.0220 to 0.7407 before recovering to 0.87.
As the SNB removed the upper limit on EUR/CHF, the SNB sought to discourage new flows into the Franc by cutting its sight deposit rate from -0.25% to -0.75% making it more expensive for banks and investors to hold the Franc.
The dramatic change in policy from the SNB comes a week before the European Central Bank (ECB) is expected to unveil a bond buying programme to counter deflationary pressures, feeding speculation that the ECB Quantitative Easing (QE) scheme could be so big that the SNB would have struggled to defend the EUR/CHF cap. The Euro was forced lower across the board with EUR/USD falling to 1.1567 before recovering back to 1.16 and EUR/GBP falling to 0.7623 (GBP/EUR 1.3118).
A full copy of the SNB press release can be found at: http://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_20150115.en.pdf
The US Dollar (USD) has lost some of its recent gains following this afternoon’s release of much weaker than anticipated US retail sales data. EUR/USD recovered from 1.1728 to 1.1845, whilst GBP/USD rose from 1.5145 to 1.5267. USD/CHF fell from 1.0238 to 1.0139 and USD/JPY fell from 117.96 to 116.08.
Market focus now turns to European and US Inflation data released on Friday 16/01/15.
The US Dollar (USD) gained overnight as the Federal Reserve kept rates near zero and sounded more optimistic on the economy whilst maintaining their pledge to be patient on increasing interest rates. The Dollar appreciated against the Euro and the Pound forcing EUR/USD to a low of 1.2266 and GBP/USD to 1.5551.
In Europe, the Swiss Franc (CHF) has depreciated sharply today as the Swiss National Bank (SNB) introduced negative rates to try and stem the rise of the Franc pushing EUR/CHF from 1.2009 to a high of 1.2097 before settling around 1.2045. The US Dollar also gained against the Franc with USD/CHF appreciating from 0.9722 to 0.9846.
The Pound has pushed higher towards the most recent GBPEUR highs of 1.2161 (EURGBP 0.8223) last seen on the 9th January 2012, hitting a high so far of 1.2153 before falling back slightly. The UK with its AAA credit rating is currently being viewed as a relative safe haven as investors continue to be concerned about the on-going Euro zone debt crisis. Switzerland the traditional safe haven has lost some of its safe haven status as the Swiss National Bank continues to enforce the EURCHF floor at 1.20. The Pound also continues to trade near its recent highs against the USD at 1.59.
The following rates are shown for indicative purposes only. Please note the rate you are able to achieve will depend on the amount of currency being purchased. Please do not hesitate to contact the dealing team on +44 (0) 1695 581 669 for a live quote.
The Swiss National Bank (SNB) has intervened in the market this morning announcing that they will set a floor to the value of the Swiss Franc (CHF) against the Euro at EURCHF 1.20.
‘The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development. The Swiss National Bank (SNB) is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities. Even at a rate of CHF 1.20 per euro, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflationary risks so require, the SNB will take further measures.’
On the interbank market EURCHF has appreciated from 1.10 to above 1.20. GBPCHF has appreciated past 1.36, whilst USDCHF trades above 0.84.
Elsewhere, EURUSD trades between 1.41-1.42, EURGBP trades at 0.88 (GBPEUR 1.1364) and GBPUSD trades at 1.61.