A look at the currency markets on Thursday with the team at Intesa Sanpaolo and Western Union.
Latest Rates for Reference
- The pound to euro exchange rate conversion: GBP/EUR is @ 1.3060.
- The euro to dollar exchange rate conversion: EUR/USD is @ 1.1609.
- The pound to dollar exchange rate conversion: GBP/USD is @ 1.5159.
It's All About the Swiss Franc Battering the Euro
The interplay between the euro and the Swiss Franc is the key driver of action on the 15th of January.
"Never seen before volatility descended on currency markets after Switzerland’s central bank in a surprise and questionable move yanked the lid off its currency against the euro," says Joe Manimbo at Western Union in response to the big news event on currency markets.
"The Swiss franc charged like a bull out of the gates after the Swiss National Bank said it ditched its three-year-old cap of 1.20 against the euro, a move that was designed to guard against deflation taking hold of the export-driven Alpine economy," says Manimbo.
The euro responded with a spectacular plunge against the Swissie and other peers like the US dollar and pound sterling.
With Swiss officials allowing their currency to run free, it did just that soaring some 30% against the euro and exploding some 15% against the greenback.
"The euro’s back is firmly against the ropes. Will the ECB next week deliver the knockout blow for the euro on Jan. 22 and announce ‘shock and awe’ caliber QE? That remains to be seen," says Manimbo.
Analyst Asmara Jamaleh at Italy’s Intesa Sanpaolo gives us a break-down of the major currency pairs ahead of the SNB action:
The US Dollar Rate Today
The Dollar still strong and stable at just under last week’s highs.
Uncertainty over the timing of the Fed’s first hike is not affecting the US currency negatively, as uncertainties are even greater in the other main regions of the world.
Implied fed funds rates on the market are dropping moderately, ahead of Friday’s inflation data, expected to show a decline.
Today, in the meantime, retail sales are due for release, and are not expected to reap a significant positive impact on the dollar, barring upside surprises.
Also, Plosser is scheduled to speak and the Beige Book will be published, although neither event is expected to provide clarifying indications on the timing of the Fed reversal.
The Euro Rate Today
The euro, on the other hand, seems more vulnerable, despite the fact that Wednesday’s industrial output data were not as weak as expected.
The single currency is being weighed down by uncertainty over the ECB’s course of action.
However, based on the statements made by Governing Council members, the ECB seems increasingly likely to intervene already its next meeting on 22 January.
Further stimulus in the short term could temporarily weaken the euro, but this, in turn, may support a subsequent recovery of the exchange rate, albeit modest.
The Pound Sterling Rate Today
After initially dipping as a reaction to inflation data, sterling recovered rather well yesterday.
From lows in the GBP/USD 1.50 area it climbed back to around GBP/USD 1.52, ultimately levelling off at 1.51.
The reaction of market rates was also modest, as the decline did not involve the core component and because the BoE had preemptively warned against such a development in the short term. Against the euro the pound appreciated, rising from EUR/GBP 0.78 to 0.77.
The baseline scenario continues to point to an initial BoE hike in the course of this year, although further indications on this front will start to come next week, with the BoE minutes, due out on Wednesday, 21 January.
Today, Carney and Cunliffe will report to Parliament on financial stability issues, and may also comment on the evolution of the macroeconomic picture and on monetary policy.