CHF weakness against the Euro looks temporary
By Yann Quelenn
Although the Swiss Franc has tumbled considerably against the Euro, falling from around 1.07 CHF/EUR in April to current levels of around 1.15, the Euro’s party might not last. Today the Swiss National Bank did its best to sustain the franc’s weakness, keeping unchanged both the prime rate at -0.75% and the target range for 3-month Libor at -1.25% to -0.25%. The central bank also declared it will remain active in the FX market.
The real question is: how strong will the Euro be? There is plentiful room for EUR downside, given the never-ending Greek issue and the imminent Catalonian referendum for independence from Spain – both drag on European cohesion. We believe that actual EUR/CHF levels are temporary. Meanwhile, the Swiss economy remains robust despite the strong CHF. Indeed, the SNB has revised its forecasts upwards.
Pound likely to retreat short-term
By Arnaud Masset
Given the rise of the GBP in the past days, with a peak of 1.3329 USD on Wednesday, risk is now skewed downside, signalling a retracement towards $1.30.
At noon UK time today, the Bank of England will publish results of yesterday’s meeting of its Monetary Policy Committee. Against a backdrop a potential, Brexit-caused economic slowdown, the BoE will have to tolerate the current overshoot of its inflation targets – that is, tightening might be needed, but it still is unlikely. The central bank won’t update its inflation and growth forecast today, that will come next at its November meeting. Meanwhile, the big question is: how many Members of Parliament will become hawkish and demand an interest hike.