Category: Monetary Policy

After the SNB Decision, the Reverberations Continue


Saying the US dollar had a good week even though it lost 18.5% against the Swiss franc may be a bit like the old joke about asking Mrs. Lincoln, “besides that, how was the play?”

The Swiss National Central Bank’s unexpected decision to abandon it cap will be a day recorded in foreign exchange history, ranking up there with Nixon’s closing of the gold window and the UK leaving the ERM. In all three cases, officials balked at the costs/risks of pursuing their national strategies. 

Swiss Currency Cap Abandoned on Fears of a Euro Collapse


The Central Bank of Switzerland has abandoned a cap on the Swiss franc, causing it to soar in value against the euro.

The Swiss franc rose 17.5% against the euro and 15.7% against the US dollar on Thursday after the bank announced it would decouple the currency from the euro, seeing weakness in the European economy and the likelihood in a fall in the euro’s value in the near term.

Swiss and Indian Central Bank Surprises Rile Financial Markets


Seemingly, out of the blue, the Swiss National Bank abandoned its cap in the Swiss franc (euro floor) and moved deeper into negative interest rates.  This has seen the Swiss franc rocket higher against the euro and dollar.  It sent the euro briefly below $1.1600. 

The SNB lowered its 3-month LIBOR target to between -0.25% and -1.25%.  The charge for sight deposits over the exemption threshold to -0.75%.  Previously the LIBOR target range was -0.25% and -0.75%.  

Are EMU Debtors Getting the Upper Hand Over Creditors?


The key axis in Europe is between creditors and debtors.  Each pushes their own interests.  The regime of austerity in Europe indicates that the creditors have had the upper hand.  However, two developments in the last two days suggest the tide is turning. 

Dollar Strength, ECB QE and Aussie Economic News


The combination of the outright deflation in the Eurozone and the seemingly immunity of the US economy to the poor global developments has encouraged investors to extend the dollar’s gains.  The euro has been pushed below $1.18.  Sterling neared $1.50.  And the dollar, which was at three week lows against the yen on Tuesday, near JPY118, is knocking on JPY120 again.    

Spain Surprises, the ECB Money Supply and Chinese Monetary Policy


The approaching New Year thins market participation.  This makes for some choppy price action.  The result is weaker equity markets and a softer US dollar.  The greenback is lower against the euro and sterling.  Sterling held just above $1.55 in Asia before recovering a bit in Europe.  The euro slipped to a new low of $1.2125 in Asia before steadying in Europe, and recovered toward $1.2185.  The biggest mover was the yen. The dollar hit an air pocket and slid to JPY119.20 before recovering back to JPY119.80 in Europe, but it is not clear that the move is over.

Some Additional Thoughts on the Fed Statement, plus a Swiss National Bank Surprise


The Swiss National Bank surprised the market by announced a negative 25 bp rate on sight deposits and lower the 3-month Libor range to -0.75% to 0.25%. Although SNB President Jordan revealed that inflows from Russia compelled it to intervene in recent days, the fact of the matter is that the negative rate goes into effect the same day as the ECB’s next meeting, January 22. 

Will the U.S. Fed Need to be ‘Patient’ for a ‘Considerable Period’?


The Federal Reserve upgraded its assessment of the labor market, and changed the future guidance from “considerable time” to “can be patient in beginning to normalize the stance of monetary policy.”  The statement also draws a distinction between market-based measures of inflation expectations, which have fallen, and survey-based measures, which are stable.  We expect Yellen to indicate that the change in wording is not a change of intent. 

Federal Reserve Stays Dovish on U.S. Strength as Bundesbank Warns of QE Failure


Interest rates may not rise in 2015 as the Federal Reserve indicates it will be more patient before making its first rate hike since the global financial crisis of 2008.

The Federal Open Market Committee said in a statement Wednesday that it “can be patient in beginning to normalize the stance of monetary policy,” a signal that many analysts had been expecting that falling oil costs caused inflation to become a minor concern for the policymakers. 

The U.S. FOMC Statement is on Many Minds


The US dollar’s recovery that began yesterday continues today.  The euro reached the 50% retracement objective of its slide since mid-October (~$1.2565) and now is more than a full cent lower.  The dollar’s slump against the yen ended just above the JPY115.50 level, also a key technical retracement level.  The dollar’s high today was JPY117.50.