SNB stays soft – dragging EuroBy Arnaud Masset
The Swiss National Bank maintained interest on sight deposits at -0.75% and kept the 3-month target at -1.25% to -0.25%. The SNB also reiterated that it will remain active in the foreign exchange market. Conclusion: do not the euro to break 1.20 before autumn. The September European Central Bank meeting will be critical, as the SNB won’t tighten until the ECB clearly moves toward normalisation.
Short-term inflation forecasts have been revised to the upside - with Q2, Q3 and Q3 2018 figures being increased to 0.9% from 0.6% in June – following the rise in crude oil prices. However, the SNB lowered its growth forecast for 2019, amid lower growth expectations in the Eurozone and political tensions among EU members – specifically the uncertainty in Italy. In light of all this, the SNB has every reason to delay hiking rates.
Bank of England faces complexityBy Peter Rosenstreich
At today’s BoE meeting we expect no changes. Economic data has not firmed as expected. GBP/USD’s failure to move above 1.3150 indicates the bearishness. Politics are difficult: in what seems like a perpetual political crisis, Prime Minister Theresa May again avoided a breakdown in government with defeat of a bill that would give MPs the power to stop Brexit. But it’s only a matter of time to the next political crisis. Since the BoE’s last meeting, UK growth has moderated and recovery from harsh winter weather has been slow. With downgraded GDP growth for 2018 and limited wage pressure, the BoE is unlikely to hike before August, and throwing in Brexit negotiations just ramps up the uncertainty.
Jumping pesoBy Vincent-Frédéric Mivelaz
Elections in Mexico are approaching and pushing the peso. At 20.4583 (year-to-date: +4.06%), the USD/MXN could strengthen strongly if interest rates fail to rise. The pair is approaching its 22.0368 historical high (19 January 2017). Today’s Bank of Mexico monetary decision remains uncertain: expectations tend towards a 0.25% hike (current: 7.50%) due to peso weakness and inflation above its 3% target. Room for manoeuvre remains tight, as the overnight rate already rose 0.25% in February and approaches its historical highs from 2008 (8.25%), a threshold the central bank hopes to avoid. The next change to hike rates comes on 2 August. Among the four Presidential candidates, polls are favouring Andrés Manuel López Obrador (called AMLO), former Mexico City mayor and member of the National Regeneration Movement, a left-wing political party that will fight its first presidential elections on 1 July.