Friday, January 16, 2015

The Swiss National Bank shocked financial markets !!

     SNB shocked financial markets
      The Swiss National Bank (SNB) unexpectedly discontinued the floor from EUR/CHF, and lowered the interest rate on sight deposit to -0.75% from -0.25%. (2nd cut in less than a month).
      Why change a policy started in 2011 now? The main reasons were the EUR/USD depreciation (due to strong dollar) and diverging monetary policy between major currency areas, that are likely to become even more pronounced. The latter, raises the strong possibility that next week’s ECB meeting could bring a larger-than-expected QE program.
      The further weakening of EUR, would have put downward pressure on EUR/CHF, hence increasing the need for the SNB to intervene. However, the SNB may have been reluctant or even unable to intervene further
      The removal of the floor does not mean that the SNB thinks CHF is fairly valued or that it is abandoning the market. It could set a CHF cup against another currency (perhaps the dollar) or a broader basket of currencies than just the euro.
      With a big EUR-buyer out of the market and potentially becoming a big buyer of USD, the implications are for a lower EUR/USD.
      As for USD/CHF, given the divergence between the Fed and SNB monetary policies, and the deflationary condition of the Switzerland’s economy, I would expect the USD/CHF to recover further in the near future.
     Today:
      Eurozone: Eurozone final CPIs for December is expected to confirm that the bloc fell into deflation, for the first time since 2009
      US: CPI for December are expected to fall below 1%. Industrial production for December. The Preliminary  U o M consumer sentiment for January The surveys 1-year and 5-to-10 inflation expectation outlook are also coming out

      Speakers: ECB Governing Council member Carlos Costa, Minneapolis Fed President Narayana Kocherlakota, San Francisco Fed President John Williams and St. Louis Fed President Jim Bullard speak. 

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