Swiss annual inflation dropped to 0.7% from 1.5% in December on the back of cheaper oil, while unemployment rose to its highest in almost 2 years as the drop in global demand for Swiss goods forced more firms to cut jobs. The labor market is expected to weaken further as slumping demand will lead to more cost cutting.
Swiss annual inflation dropped to 0.7% from 1.5% in December on the back of cheaper oil, while unemployment rose to its highest in almost 2 years as the drop in global demand for Swiss goods forced more firms to cut jobs. The labor market is expected to weaken further as slumping demand will lead to more cost cutting.
The dour economic data added to views that the Swiss National Bank will slash interest rates further and might even turn to unconventional measures to support the economy. Indeed, with the current benchmark rate at 0.50% there is little room for the MPC to operate. We may see the central bank employ a (ZIRP) zero interest rate policy or they could follow the BoJ’s lead and ease by a smaller amount.
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Sunday, January 11, 2009
Swiss Franc Heads Toward Support As Labor Market Weakens
Euro's Fundamental Path Will Be Defined By Critical ECB Rate Decision
In the forthcoming week, the euro may once again find a dominant, fundamental trend from its mature and wide range against the benchmark US dollar. That is because buried amid second-tier economic indicators we will receive the European Central Bank’s (ECB) first rate decision for the new year. While the policy authority’s announcements have been top economic fodder for the months, this one is particularly important as it will reveal whether President Jean-Claude Trichet and his fellow monetary policy makers will eventually take the region’s target rate to near-zero levels like its US and Japanese counterparts.
In the forthcoming week, the euro may once again find a dominant, fundamental trend from its mature and wide range against the benchmark US dollar. That is because buried amid second-tier economic indicators we will receive the European Central Bank’s (ECB) first rate decision for the new year. While the policy authority’s announcements have been top economic fodder for the months, this one is particularly important as it will reveal whether President Jean-Claude Trichet and his fellow monetary policy makers will eventually take the region’s target rate to near-zero levels like its US and Japanese counterparts.
So, how can we gather this from one decision when the main rate is still at 2.50 percent? Because this decision will define the pace the ECB is willing to keep as they come dangerously close to the ever-dreaded zero interest rate policy (ZIRP). Looking to economists forecasts, a heavy consensus favors a 50 basis point cut to 2.00 percent. This would follow on the heels of the Bank of England’s own half a percent reduction this past week (though this was a significant deceleration from the clip the British policy authority had previous been running at). Interestingly enough, the market is prepared for something similar. Herein lies the potential for the euro’s strength to come under serious scrutiny. Overnight index swaps show market participants are pricing in a little more than 75 basis points worth of easing over the coming year. This would mean that the ECB would only lower rates once more and by a conservative quarter-percentage point.
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British Pound Could Gain as Traders Pare Back Rate Cut Expectations
Despite dour economic data, the British Pound has room to rise in the near term. . Considering the calendar is not set to offer anything blatantly worse than what has already been priced into the exchange rate, a moderation in rate cut expectations gives sterling some room for a corrective upswing.
The Trade Balance report headlines the economic calendar in the week ahead, with expectations calling for the deficit to narrow in November to -£7.5 billion. The rapid depreciation of the British Pound is likely to be a key contributor, making UK products substantially cheaper for overseas buyers and boosting exports. Indeed, Sterling lost 3.26% against the Euro and 2.87% against the US Dollar in November. Cumulatively, the US and the Euro Zone account for well over 60% of all UK cross-border sales. Meanwhile, imports have likely declined as consumers cut back spending on both domestic and foreign-made products.
Last week, we saw consumer confidence fall to a record low as economic growth turned sluggish, sending unemployment higher all the while tumbling home values and stock prices produced large negative wealth effects. These very trends are up to be on display again both with December’s BRC Retail Sales Monitor and RICS House Price Balance survey, with the latter expected to show that 74% of those polled reported falling property values.
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Dollar Mixed on Job News
The dollar was mixed against major currencies Friday, as investors took the news of the high number of U.S. December job losses in stride.
The greenback was boosted on the slightly better-than-expected news of 524,0000 jobs lost in December, according to John Kicklighter. That's because some speculators may have been expecting a higher figure, as was the case in November when job losses exceeded many forecasts, he said.
The lower than expected losses sparked a slight dollar rally, but the movement was due "more on relief and repositioning than any belief that the worst is behind [us]," according to a research note from Sacha Tihanyi, currency strategist at Scotia Capital.
The Labor Department also reported that the unemployment rate rose to 7.2% last month from 6.7% in November - its highest rate since January 1993.
The pound had been gaining against the dollar for five consecutive days, but was largely unchanged late Friday, ended slightly lower against the dollar.
The British pound fell 0.25% against the dollar to $1.5178 from $1.5197 late Thursday.
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Japanese Yen Forecast Remains Bullish Amid Financial Market Distress
An empty week of economic data left the Japanese Yen to trade purely off of shifts in risk sentiment, and a downturn in risky asset classes pushed the currency higher against the US dollar and other major counterparts.
An empty week of economic data left the Japanese Yen to trade purely off of shifts in risk sentiment, and a downturn in risky asset classes pushed the currency higher against the US dollar and other major counterparts. Indeed, the USD/JPY lost almost all of its recent gains, and Japanese Yen momentum continues to favor USD/JPY weakness. A shift in sentiment led our DailyFX+ trading signals to buy the Yen aggressively through end-of-week trade, and the move proved prescient ahead of Friday’s substantive tumbles in Japanese Yen crosses.
Outlook for the highly risk-sensitive Japanese Yen will subsequently depend on the trajectory in global risky asset classes, and overall momentum favors further losses. An absolutely dismal US Non Farm Payrolls report on Friday reminded traders of the severity of ongoing economic difficulties in the world’s largest economy, and few express hopes that conditions will post significant improvement through the foreseeable future. As such, we would argue that “de-leveraging” trades, or assets that benefit from underperformance in equity markets, are likely to continue to gain. Disappointing outlook for Japanese economic conditions notwithstanding, the Japanese Yen will likely benefit from these dynamics.
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