Swiss franc still overvalued, but might rebound short term versus Euro
By Yann Quelenn
The CHF is consolidating its position at 1.1350 per Euro, as Swiss domestic bank deposits fell to 470.3 billion in the week ending 18 August from CHF 476.3 billion the previous week. For the time being, the Swiss National Bank can breathe easier in its efforts to contain the strength of the franc.
The CHF is still significantly overvalued. The next potential event to drive its weakening will be the European Central Bank’s General Council meeting on 21 September. Markets expect the ECB to start further tightening by reducing the asset purchase program. However, we believe the Euro bankers will act cautiously, which would push down on the EUR/CHF rate.
Also boosting the CHF longer-term is the Greek debt hangover. Although ratings house Fitch this weekend upgraded Greek debt to B- from CCC, we believe Greece cannot service its debt sustainably in the long run – this will keep money flowing out of Euros into Switzerland.
USD trading sideways ahead of Friday address by Fed Chief Yellen
By Arnaud Masset
Greenback rates were treading water Monday, as currency traders await what is expected to be a major policy address Friday by US Federal Reserve Chair Janet Yellen at 3 pm London time/4 pm Central European time. She will speak at a symposium organised by the Kansas City Federal Reserve in Jackson Hole, Wyoming.
Signals from the USA have been mixed. Mass resignations around the Trump Administration, and rumours that Chief Economic Advisor Gary Cohn would also resign, have spooked investors. Equities took a hit, with the S&P 500 down 2.08% and the Nasdaq off for the fourth week in a row. On the other hand, the Fed and its counterpart, the European Central Bank, are expected to begin running of their bond-overstocked balance sheets.
Just how much, and by when, will be the key answers hoped for from Yellen. Those same answers will be hoped for from her opposite number, European Central Bank Head Mario Draghi, who will also speak at the Jackson Hole event, which kicks off on Thursday.