We got not one, not two, but three monetary policy announcements during today’s morning London session, with the SNB, BOE, and ECB in the spotlight.
Even so, price action was disappointingly underwhelming since the euro was pretty much range-bound and the pound had steady two-way action. The only real mover was the Swissy, but even the Swissy’s price action wasn’t what you would call explosive.
Things may change (or not) for the euro later, however, since ECB Overlord Draghi’s presser is coming up.
- French flash manufacturing PMI: 59.3 vs. 57.2 expected, 57.7 previous
- French flash services PMI: 59.4 vs. 60.0 expected, 60.4 previous
- German flash manufacturing PMI: 63.3 vs. 62.0 expected, 62.5 previous
- German flash services PMI: 55.8 vs. 54.6 expected, 54.3 previous
- Euro Zone flash manufacturing PMI: 60.6 vs. 59.7 expected, 60.1 previous
- Euro Zone flash services PMI: 56.5 vs. 56.0 expected, 56.2 previous
- U.K. retail sales: 1.1% vs. 0.4% expected, 0.5% previous
- SNB maintained its monetary policy
- Swissy still “highly valued” according to SNB
- BOE: 9-0 vote to keep current monetary policy
- ECB announced no changes to current monetary policy
- QE extension that from January 2018 to September 2018 at €30B per month was reaffirmed
- ECB did not remove easing bias on QE program
- ECB presser coming up; watch it live here
SNB monetary policy decision
As widely expected (and as usual), the Swiss National Bank (SNB) announced earlier that it decided to maintain its current monetary policy.
The target range for the Libor rate is therefore still between -1.25% and -0.25%, with the median target rate at -0.75%. The interest rate on sight deposits was also maintained at -0.75%.
And while the SNB acknowledged that “the Swiss franc has weakened further against the euro and, more recently, has also depreciated against the US dollar,” the SNB still thinks that the Swissy “remains highly valued,” adding that “renewed appreciation would still be a threat to price and economic developments.”
And that’s why the SNB renewed its commitment to “remain active in the foreign exchange market as necessary” because that and the SNB’s negative rates “keep the attractiveness of Swiss franc investments low and thus ease pressure on the currency.”
Interestingly enough, the SNB’s fresh forecasts show that it expects inflation to exceed its 2.0% target by Q3 2020. However, when SNB Boss-Man Thomas Jordan was asked about the prospect of future rate hikes during the presser, he had this to say:
“It’s still early, very early, to talk about normalization at the Swiss National Bank.”
“Inflation is probably lower than what the conditional inflation curve is showing. There’s no risk of inflation, also inflation expectations are very well anchored at a much lower level.””
MPC policy decision and meeting minutes
The BOE’s MPC released the minutes for its latest monetary policy huddle earlier during the session. And as usual, below are some of the more important and/or interesting points in, well, bullet points for easier reading:
- The MPC voted to maintain the BOE’s current monetary policy
- 9-0 vote to keep the Bank Rate at 0.25% as expected
- 9-0 vote to maintain stock of government bonds purchased at £435B
- 9-0 vote to maintain stock of corporate bonds purchased at £10B
- “Developments regarding the United Kingdom’s withdrawal from the European Union – and in particular the reaction of households, businesses and asset prices to them – had remained the most significant influence on, and source of uncertainty about, the economic outlook“
- “Domestically, some activity indicators had suggested GDP growth in Q4 might be slightly softer than in Q3“
- BOE thinks that it’s “too early to arrive at a comprehensive view of the effect of November’s rise in Bank Rate on the economy“
- BOE judges that recent +3.1% year-on-year CPI reading “did not materially alter the outlook” despite the overshoot
- Moreover, “MPC continued to judge that inflation was likely to be close to its peak, and would decline towards the 2% target in the medium term“
- “further modest increases in Bank Rate would be warranted over the next few years, in order to return inflation sustainably to the target“
- “Any future increases in Bank Rate were expected to be at a gradual pace and to a limited extent“
ECB monetary policy decision
As expected, the ECB announced in its official press statement that no changes were made to it monetary policy.
As such, the refinancing rate is still at 0.00%, the marginal lending rate is unchanged at 0.25%, and the deposit rate is steady at -0.40%.
Also as expected, the ECB reiterated its forward guidance that interest rates aren’t gonna be moving up anytime soon when it repeated its mantra that:
“The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.”
Speaking of asset purchases, the ECB also reaffirmed its intention that starting on starting on January 2018 the ECB will “continue to make net asset purchases under the asset purchase programme (APP), at a monthly pace of €30 billion, until the end of September 2018, or beyond, if necessary.”
Other than that, the ECB also kept its easing bias on its QE program when it repeated its forward guidance that:
“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the APP in terms of size and/or duration.”
Anyhow, market players are now waiting on what ECB Overlord Draghi has to say, so do keep an eye on the euro.
By the way, you can watch the ECB presser by clicking here, if you’re interested.
Major Market Mover(s):
The Swissy was the only real mover during the morning London session since it got sold off pretty much across the board despite the risk-off vibes in Europe.
Whether this was due to the SNB’s promise (or threat) to continue weakening the Swissy or due to the SNB directly weakening the Swissy (probably both) is not very clear, however.
USD/CHF was up by 13 pips (+0.14%) to 0.9871, CAD/CHF was up by 14 pips (+0.19%) to 0.7695, EUR/CHF was up by 30 pips (+0.26%) to 1.1679
The pound had uniform two-way action during the session since it found buyers ahead of and shortly after the U.K.’s better-than-expected retail sales report.
However, the pound encountered sellers a couple of hours before the BOE’s monetary policy statement. And when the BOE announced its monetary policy decision, the pound encountered even more sellers, probably because traders were none too happy with the BOE’s cautious forward guidance.
GBP/USD was up by 2 pips (+0.02%) to 1.3436 with 1.3465 as session high, GBP/JPY was down by 13 pips (-0.08%) to 152.36 with 151.88 as session high, GBP/CHF was up by 18 pips (+0.14%) to 1.3262 with 1.3299 as session high
Watch Out For:
- 1:30 pm GMT: ECB presser; watch it live here
- 1:30 pm GMT: Headline (0.3% expected, 0.2% previous) and core (0.6% expected, 0.1% previous) readings for U.S. retail sales
- 1:30 pm GMT: Canada’s NHPI (0.2% expected, 0.2% previous)
- 1:30 pm GMT: U.S. initial jobless claims (236K expected, 236K previous)
- 1:30 pm GMT: U.S. import prices (0.7% expected, 0.2% previous)
- 2:30 pm GMT: CB’s U.K. leading index (-0.2% previous)
- 2:45 pm GMT: Markit’s flash U.S. manufacturing PMI (53.9 expected, 53.9 previous)
- 2:45 pm GMT: Markit’s flash U.S. services PMI (54.8 expected, 54.5 previous)
- 3:00 pm GMT: U.S. business inventories (-0.1% expected, 0.0% previous)
- 5:23 pm GMT: BOC Boss-Man Poloz will speak
- 9:30 pm GMT: BNZ’s New Zealand manufacturing index (57.2 previous)