Fragile francBy Vincent-Frédéric Mivelaz
The Swiss National Bank is walking a tightrope. Yesterday it held its deposit rate at -0.75%, where it’s been since January 2015. EUR/CHF has traded sideways since 7 March between 1.1677 (07.03.2018 low) and 1.1735 (08/03/2018 high) and is expected to remain there in the short-term – that’s what the SNB wants.
On one hand, the franc has faced strong depreciation against the single currency: EUR/CHF up 9.04% in 1 year. On the other hand, the SNB says the CHF is still overvalued and is worried about volatile forex markets. As a safe haven, the CHF remains very sensitive to its macro environment, which could flare up if a trade war develops. Moreover, as the Swiss economy continues its expansion (4Q 2017 GDP: 1.90%), inflation expectations are decreasing. SNB projects inflation rate at 0.60% (previously: 0.70%) for 2018, 0.90% in 2019 and 1.90% in 2020 with current interest rates unchanged.
Trump-quakes roil the dollarBy Arnaud Masset
Will US President Donald Trump fire his National Security Adviser H.R. McMaster? The answer is not yet public, but speculation of it and the attendant chaos tanked the greenback during today’s Asian trading session, as investors rushed into safe-haven assets ahead of the weekend.
The Japanese yen outperformed its G10 peers, rising 0.56% against the buck, while the Swiss franc appreciated 0.25% with USD/CHF sliding to 0.9490. US Treasury yields have stabilised since mid-February, with the 2-year trading around 2.28% and the 10-year treading water around 2.82%. Investors still await the US Federal Reserve’s monetary plan for the rest of the year, but the increase in short-term interest rates already suggests that Chair Jerome Powell’s hawkish message has been heard loud and clear. The 3-month Libor hit 1.78%, while the 3-month OIS swap has increased continuously for seven months to stand at 1.68%. The market expects another rate hike in June.
So buck bias will point upside, when investors re-focus on the Fed’s policy tightening and put the political circus aside. We remain bullish on EUR/USD as the European Central Bank is also moving, slowly though, towards tightening.