Swiss Franc Dominates Market Focus
Yesterday saw a unique day of trading, with the Swiss central bank unexpectedly withdrawing the franc from its exchange rate mechanism to the euro, in place since 2011. The resulting volatility was unprecedented, with the CHF rallying by 30% at one point, before settling at a 15% gain in value.
Across the Atlantic, a raft of economic updates today is expected to attract significant attention among investors. The consumer price inflation report scheduled in the US will be eyed to gauge the impact of low oil prices on domestic price growth. Additionally, the preliminary Reuters/Michigan survey is anticipated to show that US consumer confidence for January reached close to its pre-recession highs.
Pound Sterling – UK Markets
With little on the domestic macroeconomic front, Sterling is trading on a firm footing against the majors this morning, whilst enjoying a multi-year high versus the euro at over 1.30. Going forward, market participants will keep a tab on crucial macro events in the UK next week. The minutes of the BoE’s latest policy meeting will attract significant attention among investors to help gain an insight into the timing of an interest rate rise in the UK. Additionally, Britain’s labour market data will be noted to gauge if growth in domestic earnings continued with its upside momentum for the three months ended November. Furthermore, Sterling traders will keep a tab on the central bank Chief’s open letter to the British Finance Minister, George Osborne, next week. This letter will be scrutinised for further direction, particularly considering that low oil prices and macro troubles in Europe continue to pose a downside risk to UK’s inflation.
The Pound drifted lower against the greenback in yesterday’s trading session after investors flocked to safe haven bets following the unexpected announcement by the Swiss National Bank to abandon its minimum exchange rate in the Euro-Swiss Franc pair.
US Dollar – US Markets
The US Dollar gained ground against most of its major peers yesterday after the unexpected move by the SNB to end the Euro cap on the nation’s currency triggered intense volatility in currency markets. Additionally, data released in the US showed that annual producer price inflation eased less than expected for December, albeit prices grew by the slowest pace since February 2014 amid the recent tumble in global oil prices. In light of this report, market participants will eye today’s consumer price inflation reading where annual growth in prices is expected to almost halve for December. However, a downside surprise in the nation’s core inflation reading for the last month might raise concerns among investors since the US Fed often focuses on the latter while formulating its policy decisions.
Later today, the flash Reuters/Michigan print scheduled is expected to show that morale among consumers improved for January after reaching close to its pre-recession highs last month. Furthermore, investors will eye today’s US industrial and manufacturing production data to gain an insight into the nation’s overall health for the last quarter of 2014.
Euro – European Markets
Yesterday, the Euro dropped below the 1.16 mark against the greenback and the 1.30 level versus the pound, after the SNB surprised markets by removing the forex trading cap on the Euro-Swiss franc pair. Amid the turmoil that followed the SNB decision, investors overlooked yesterday’s trade report in the Euro zone which showed that trade surplus widened in line with market estimates for November, especially after a weaker Euro boosted exports and curbed imports.
The Euro has partly rebounded this morning from yesterday’s lows against the greenback. Today’s revised data is expected to show that inflation in the Euro zone remained in the negative territory for December, amid an ongoing slump in global crude oil prices. Additionally, the European Court of Justice’s recent ruling was in favour of the ECB’s Outright Monetary Transactions plans which has paved way for the central bank to unleash new easing measures in its next week’s policy meeting. Going forward, preliminary manufacturing and services PMI readings across key European nations are also likely to attract considerable attention among Euro investors next week.
Other Currencies – Highlights
The Swiss Franc rallied hugely against its key counterparts in yesterday’s trading session after the SNB announced that it is scrapping the minimum exchange rate against the Euro. Meanwhile, the SNB further lowered its key interest rate into negative territory which partly reversed losses in the Euro-Swiss Franc pair that fell below the 0.95 level, in response to yesterday’s unexpected decision of the central bank. Separately, the SNB Chairman, Thomas Jordan, revealed that the cap had been scrapped because it was unsustainable, especially considering the ECB’s plans to implement a quantitative easing programme in the Euro zone.
Data released earlier today showed that retail sales in Switzerland declined for November at its strongest pace since September 2011, stoking concerns of deflation in the nation. Going forward, a slew of crucial US macro triggers scheduled later today is expected to prove crucial for the Swiss Franc against the greenback.