Swiss Franc Soars
The Swiss franc has risen some 30% in chaotic trade after the Swiss central bank removed the country's cap on the Swiss Francs value against the euro.
The SNB said the cap is no longer justified. Additionally it reduced a key interest rate from -0.25% to -0.75%, increasing the amount investors have to pay to hold Swiss deposits.
Swiss shares have fallen 6% and stock markets fell after "safe haven" buying of assets such as gold and German bonds..
Many traders believe the euro will fall even further if the European Central Bank (ECB) starts quantitative easing, by purchasing bonds to put cash into the eurozone banking system in the hope of stimulating a recovery.
With no other crucial macro triggers in the UK, Sterling investors are likely to keep a tab on global cues for further direction. Meanwhile, concerns about the recent drop in UK inflation were partially calmed after the BoE Chief, Mark Carney, reiterated that low oil prices will positively impact Britain’s economic growth.
Across the Atlantic, yesterday’s soft retail sales data weighed on expectations that US consumer spending is gaining momentum. In the Euro zone, following Germany’s in-line GDP numbers this morning, today’s trade numbers in the Euro zone will be eyed to verify signs of pickup in the region’s exports, amid a weaker Euro.
Pound Sterling – UK Markets
The Swiss National Bank said the cap, introduced in Sept. 2011, is no longer justified.
At the same time it reduced a key interest rate from -0.25% to -0.75%, increasing the amount investors have to pay to hold Swiss deposits.
In other developments RICS survey released earlier today indicated that growth in Britain’s house prices continued to ease for December, offering another evidence that the UK’s housing market is losing momentum. However, the Pound has shown little reaction to today’s data and is trading on weaker footing against the greenback this morning. Moving ahead, with US producer price inflation numbers scheduled later today investors in Sterling-greenback pair are likely to stay on their toes.
Yesterday, the Pound gained ground against the majors. The BoE Governor, Mark Carney, reiterated that the low oil prices are a net positive for the UK economy which helped ease concerns among investors following the more than expected drop in December’s consumer price inflation. However, considering that the core consumer price inflation numbers in the UK improved in line with estimates for December, investors remain optimistic that wage growth would continue to improve in the UK. Going forward, Sterling traders will keep a tab on the minutes of the BoE’s most recent policy meeting next week to better gauge the timing of an interest rate rise in the UK.
US Dollar – US Markets
The greenback is trading on a firmer footing against the Pound this morning. Investors will eye US producer price inflation data later today which is expected to show a moderation in price growth for December, amid the recent decline in global crude oil prices. A more than expected ease in today’s inflation report is likely to strengthen the case of a downside surprise in tomorrow’s consumer price inflation reading and could further stoke dis-inflationary concerns in the US. Additionally, today’s weekly jobless claims survey in the US will attract attention among traders for cues on the labour market.
Yesterday, the greenback lost ground against the majors after data from the US revealed that retail sales in the nation dropped more than expected for December. This was the steepest fall in domestic sales since September 2009 and was in contrast to the US Fed’s latest beige book report which hinted that consumer spending increased during the holiday season last month. However, demand for safe haven bets kept the US Dollar buoyed after the World Bank downgraded its global growth forecast.
Euro – European Markets
The single currency is trading broadly lower after the Swiss Central Bank ended its floor exchange rate versus the Euro. A report released earlier today revealed that German GDP expanded in line with market estimates. With recent updates in the nation showing a mixed picture, uncertainty about the country’s growth prospects continue to be high. Investors will keep a tab on the Euro zone’s trade data later today which is expected to show that the region’s trade surplus widened for November as a weak Euro kept exports from the Euro bloc supported.
The Euro nudged lower against Sterling yesterday after the European Court of Justice (ECJ) ruled in favour of the ECB’s Outright Monetary Transactions plan. The ECJ’s decision has strengthened expectations that the ECB might include sovereign bonds to its asset purchases programme in order to combat the deflationary woes in the region. In the midst of growing anxiety over the ECB’s stance for 2015, the upcoming monetary policy meeting scheduled next week is likely to attract increased attention.
Other Currencies – Highlights
The Aussie Dollar gained ground against the greenback earlier today and rose above the 0.82 level following the release of the upbeat Australian jobs report. The report showed that growth in full time jobs was much stronger than anticipated for December which offset the drop in part time jobs and lowered the nation’s unemployment rate unexpectedly. The report further revealed that Australia’s participation rate rose surprisingly for December, limiting prospects of an interest rate cut by the Reserve bank of Australia.
With little on the macroeconomic front, the Aussie Dollar is expected to take further direction against the greenback from US producer price inflation data scheduled later today. Moving ahead, tomorrow’s consumer price inflation numbers and the preliminary Reuters/Michigan consumer confidence survey in the US are likely to keep investors in the Aussie Dollar-US Dollar interested.