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Swiss Franc Tumbled On SNB, Sterling Firm

Published 04/23/2015, 03:30 AM
Updated 03/09/2019, 08:30 AM

Sterling remains the strongest major currency this week, maintaining the gains inspired by the BoE minutes released yesterday. Meanwhile, dollar is mildly firmer after stronger than expected housing data but struggles to breakout from recent range. Swiss franc was sharply lower after SNB surprised the markets again and announced that it would eliminate some groups of sight deposit account holders from the exemption from negative interest. In other markets, US equities closed slightly higher but remained in range. Asian equities, on the other hand, continue to make new highs as buying momentum continued. Gold and crude oil are struggling in tight range.

The SNB announced that it would eliminate some groups of sight deposit account holders from the exemption from negative interest. As noted in the statement negative interest will now also apply to the sight deposit accounts held at the SNB by enterprises associated with the Confederation, including PUBLICA, the pension fund of the Confederation. The affected account holders will be accorded the minimum exemption threshold of CHF 10M, to which negative interest does not apply. The move is a sign that the central bank's negative rate policy has not been as effective as expected in term of driving capital away from Swiss franc. CHF depreciated against EUR and the USD after the announcement.

BoE minutes for the April minutes was in a more hawkish tone than the previous ones. Besides suggesting the rate path expected by the market was too flat, the BOE also noted that inflation expectations had shown signs of stabilization after recent weakening and judged that the low rate of inflation would not lead to delays in households spending. On the monetary decision, policymakers voted unanimously (9-0) to keep the Bank rate unchanged at 0.5% and the asset-purchase program at 375B pound. All members agreed that it was appropriate to leave the monetary policy unchanged at the meeting, although 2 members regarded the decision as "finely balanced". More in BOE Sounded More Hawkish in April.

Released from China, HSBC (LONDON:HSBA) manufacturing PMI dropped to 49.2 in April, below expectation of 49.4 and hit a 12 month low. The weak PMI pointed to the fact that China's growth is decelerating more rapidly than anticipated. Nonetheless, some economists noted that recent cut in so called required reserve ratio would help revive activities in the coming months and there are prospects of more stimulus from the government. Also released from Asia, Japan manufacturing PMI dropped to 49.7 in April.

Looking ahead, Eurozone PMIs will be the main focus in European session and are generally expected to show some improvements. Swiss will release trade balance. UK retail sales will be closely watched too. From US, new home sales and jobless claims will be featured.

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