March 2018

Mar. 17, 2018 (Allthingsforex.com) – The USD managed to post gains against the CHF after the Swiss National Bank decided to leave rates unchanged at the record low -0.75% and promised to “remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.” In other words, expect the ultra-accommodative monetary policy to remain unchanged for quite some time and that the central bank is ready to ease further or to intervene should market and economic conditions warrant such actions.

As a result, the USD targeted last week’s resistance at 0.9535 and even managed to overshoot it by 12 pips to 0.9547. The readers familiar with The Quarters Theory would already know that such move should not yet be considered as a decisive breakout. However, if we continue to see more attempts at the 0.9550 area in the week ahead, we might eventually witness an actual breakout that could extend the USD rally towards the next Large Quarter Point at 0.9750. Of course, this is all provided there are no news from Washington or elsewhere in the world that spook investor sentiment and trigger a flight to safety, strengthening the CHF.

For those who care to read the official monetary policy statement as published by the SNB, please see below:

Monetary policy assessment of 15 March 2018

Swiss National Bank leaves expansionary monetary policy unchanged

The Swiss National Bank (SNB) is maintaining its expansionary monetary policy, with the aim of stabilising price developments and supporting economic activity. Interest on sight deposits at the SNB is to remain at –0.75% and the target range for the three-month Libor is unchanged at between –1.25% and –0.25%. The SNB will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.

Since the last monetary policy assessment in December, the Swiss franc has appreciated slightly overall on the back of the weaker US dollar. The Swiss franc remains highly valued. The situation in the foreign exchange market is still fragile and monetary conditions may change rapidly. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary therefore remain essential. This keeps the attractiveness of Swiss franc investments low and eases pressure on the currency.

The SNB’s conditional inflation forecast has shifted slightly downwards as a result of the somewhat stronger Swiss franc. The forecast for the current year has decreased marginally to 0.6%, from 0.7% in the previous quarter. For 2019, the SNB now expects inflation of 0.9%, compared to 1.1% last quarter. For 2020, it anticipates an inflation rate of 1.9%. The conditional inflation forecast is based on the assumption that the three-month Libor remains at –0.75% over the entire forecast horizon.

The international economic environment is currently favourable. In the fourth quarter of 2017, the global economy continued to exhibit solid, broad-based growth. International trade remained dynamic. Employment registered a further increase in the advanced economies, which is also bolstering domestic demand.

The SNB expects global economic growth to remain above potential in the coming quarters. Given the robust economic situation, the US Federal Reserve plans to continue its gradual normalisation of monetary policy. In the euro area and Japan, by contrast, monetary policy is likely to remain highly expansionary.

In Switzerland, GDP grew in the fourth quarter at an annualised 2.4%. This growth was again primarily driven by manufacturing, but most other industries also made a positive contribution. In the wake of this development, capacity utilisation in the economy as a whole improved further. The unemployment rate declined again slightly through to February. The SNB continues to expect GDP growth of around 2% for 2018 and a further gradual decrease in unemployment.

Imbalances on the mortgage and real estate markets persist. While growth in mortgage lending remained relatively low in 2017, prices for single-family houses and owner-occupied apartments began to rise more rapidly again. Residential investment property prices also rose, albeit at a somewhat slower pace. Owing to the strong growth in recent years, this segment in particular is subject to the risk of a price correction over the medium term. The SNB will continue to monitor developments on the mortgage and real estate markets closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer.”

 

 

 


USA 

Mar. 16, 2018 (Western Union Business Solutions) - The U.S. dollar was back on the defensive Friday after logging its first winning session in 5 days Thursday. The buck was modestly weaker versus the euro and sterling, down less than 0.2%, while it slipped more than 0.6% against the safe haven yen. The otherwise weaker greenback maintained a gain against Canada, keeping the U.S. unit near mid-2017 highs. White House woes have the dollar in the doghouse. More personnel changes are expected from the White House, keeping political uncertainty elevated. Should the president soon fire national security adviser H.R. McMaster, it would mark the loss of another moderate voice following the firing of the secretary of state, Rex Tillerson, and the resignation of chief economic adviser Gary Cohn. Other weights on the dollar include worries over U.S. trade policy and moderating economic optimism with consumer spending in a slump. Market attention remains on Washington where the Fed meets next week.

EUR

The euro strengthened on the back of the weaker greenback Friday but otherwise kept on a leash after another dovish salvo from Mario Draghi this week. The central bank president sounded the dovish alarms again by affirming that the ECB would be “patient, persistent and prudent” about paring back stimulus with inflation remaining stubbornly low. Underscoring anemic inflation, consumer prices unexpectedly got revised downward to a 1.1% increase in February, a wrong turn from the ECB’s just below 2% goal.

CAD

Canada’s dollar maintained a defensive posture after sinking to fresh 8-month lows this week. Trade friction between the U.S. and Canada has weighed, along with receding expectations for the Bank of Canada to raise interest rates in the months ahead following weaker readings on the economy. President Trump this week took exception with what he characterized as a U.S. trade deficit with Canada. The loonie has a heightened sensitivity to trade matters given Canada’s export-oriented economy.

GBP

Sterling firmed Friday, boosted by the weaker dollar and reports of progress between Britain and Brussels on granting the former a transitional deal to help smooth its exit from the 28-country bloc next year. Next week looms large for the pound with U.K. reports Tuesday on inflation and Wednesday on unemployment. If that’s not enough, retail sales and a Bank of England interest rate decision highlight Thursday trade. The BOE is not expected to raise rates but it could hint at the likelihood of action in the spring.

USD

The dollar was hit by political and economic crosswinds that had the U.S. unit on its back foot. Dollar sentiment is suffering from the perception of the White House shifting in a more hawkish direction with respect to trade that has concerns on the rise about a potential global trade war. Meanwhile, expectations for U.S. first quarter growth have moderated after data this week showed the American consumer in a three-month slump. Consequently, the Fed next week, while it’ expected to raise interest rates by 25 basis points to roughly 1.6%, might be inclined to temper any hawkish message and stop short of signaling a fourth rate hike this year.