- SNB adds liquidity but no peg as franc soars vs. euro and usd
- UK data misses on all front BOE votes 9-0 to keep rates unchanged
- Nikkei off -0.55% Europe off -0.55% as well
- Oil at $87.50bbl
- Gold nears $1800/oz. at $1795/oz. last
- AUD Wage Cost Index (QoQ) 0.9% vs. 0.9%
- EUR Euro-Zone Consumer Price Index - Core (YoY) (JUL) 2.5% vs. 2.5%
- EUR Euro-Zone Consumer Price Index (YoY) (JUL) 1.2% vs. 1.5%
- GBP Jobless Claims Change (JUL) 37.1K vs. 20.1K
- GBP Claimant Count Rate (JUL) 4.9% vs. 4.7%
- GBP Weekly Earnings exBonus 3M/YoY 2.6% vs. 2.3%
- GBP ILO Unemployment Rate (3M) 7.9% vs. 7.7&
Event Risk on Tap
- USD Producer Price Index (YoY) (JUL) expected at 7.0%
- USD Producer Price Index Ex Food & Energy (YoY) (JUL) expected at 2.3%
- USD Producer Price Index Ex Food & Energy (MoM) (JUL) expected at 0.2%
- USD/JPY remains at 76.60
- AUD/USD rallies to 1.0500 on M&A news
- GBP/USD weak jobless and dovish BoE take it below 1.6400
- EUR/USD consolidates at 1.4400
Another massively volatile night in CHF pairs after SNB announced further measures to weaken the franc but stopped short of announcing a peg disappointing the market. EUR/CHF put in another 300 point range dropping from 115 to 112.20 before stabilizing at 113.00. USD/CHF traded as high as .8019 in anticipation of the announcement and then slumped to .7820 before rebounding as well.
The SNB stated that "The measures taken thus far by the Swiss National Bank (SNB) against the strength of the Swiss franc are having an impact. Nevertheless, the Swiss franc remains massively overvalued. The SNB has therefore decided to expand again significantly the supply of liquidity to the Swiss franc money market. In so doing, it is increasing the downward pressure on money market interest rates with a view to further weakening the Swiss franc exchange rate. With immediate effect, it aims to expand banks' sight deposits at the SNB further, from CHF 120 billion to CHF 200 billion."
The announcement fell far short of expectations of direct peg against the euro as the monetary authorities opted for more liquidity. As we noted earlier," It's clear that Swiss authorities would prefer to use only verbal intervention to weaken the franc as the prospect of an actual peg would put enormous stress on the system, but the impact of jawboning will diminish if they do not take any material action relatively soon." A rebound in equity prices helped to lift CHF pairs off their lows in pre North American trade, but if risk aversion flows return as day progresses the Swissie could resume its rally with USD/CHF shorts targeting the .7800 level once again.
Meanwhile in UK the economic data continued to worsen as claimant count rose by 37.1K versus 20.1K eyed and the unemployment rate increased to 7.9% from 7.7% the period prior. The jump in joblessness was the biggest rise in 18 months as demand for labor dropped precipitously. The slowdown in UK economy is also having an impact on monetary officials with BOE minutes revealing that all nine members voted to keep rates unchanged, Both Mrs. Dale and Weale abandoned their calls for rate hikes suggesting that the MPc is once again adopting a more accommodating posture in light of the slowing economic growth. However after dropping to a low of 1.6357 cable rebounded strongly to 1.6440 boosted by improving risk flows. Nevertheless, the gains in the pair is are likely to be capped at the 1.6500 level and if risk aversion sentiment returns cable could revisit the lows as the day progresses.
With only the PPI data on the docket today, economic news is unlikely to have much impact on currency trade today. Although the rebound in risk flows has triggered a small short covering squeeze in both EUR/USD and GBP/USD if US equities are unable to extend the rally, risk FX could turn lower as the day proceeds.
|USD||12:30||8:30||Producer Price Index (YoY) (JUL)||7.0%||7.0%|
|USD||12:30||8:30||Producer Price Index Ex Food & Energy (YoY) (JUL)||2.3%||2.4%|
|USD||12:30||8:30||Producer Price Index Ex Food & Energy (MoM) (JUL)||0.2%||0.3%|