Today's decision of the National Bank of Switzerland was quite unexpected. Especially as SNB representatives have repeatedly assured that the defence of the so-called cap established in September 2011 In response to the excessive strengthening of the franc caused by the storm of investors towards so-called safe havens, it is holiness. This was a key element of SNB's policy, which was joined in December by the decision to introduce a negative deposit rate on 22 January b.r.
The effect of a highly expensive franc can be seen everywhere. This shows well the course of CHF return rates with other currencies since this morning.
Today, SNB unexpectedly threw the cap's defense on sweetener, lowering interest rates by further 50 p.b. Now the average range of LIBOR 3M will be -0.75% However, it is difficult to explain the reasons for the surrender of the SNB – much will be given by the press conference of Thomas Jordan, which will start at hr. 13:15.
It particularly wonders how SNB intends to deal with the problem of deflation, which will now be even clearer with a strong franc. The negative feet alone are not enough, perhaps the Swiss version of QE will become an interesting alternative? We'll see.
The effect of a highly expensive franc can be seen everywhere. This shows well the course of CHF return rates with other currencies since this morning.
Source: Thomson Reuters
It is worth considering how much today's SNB decision will not affect what the European Central Bank is planning to do, i.e. the launch of the Asset Purchase Programme (QE) at a meeting scheduled for 22 January. Perhaps this decision will have to be better thought out and elaborated in detail. The question, then, is whether we will not know these at the March ECB meeting.
An interesting situation can be seen on the EUR/USD course. The moment after the announcement of the SNB decision the course went heavily down to establish a minimum on 1.1579. So we breached the minima with 2005 to 1.1637-1.1658. However, we later returned above this level – and clearly (more than 1.17).
If we really assume that the ECB will delay the details of the QE programme, we may have just set a minimum for a few weeks at EUR/USD.
Especially since, as we pointed out yesterday, the market has received further poor macroeconomic data from the US, which could affect the scale of expectations of interest rate increases by the Fed this year. This may give excuses to adjust the dollar to the main currencies.