EURCHF Dips Post-SNB
Risk appetite generally managed to hold its course overnight with most European bourses either in flat or positive territory. There is also rising interest in the ascendency in bond yields, especially of that in the US – USDJPY continues to feed off the widening of the 2yr UST-JGB yield spread, driven by expectations of Fed-BoJ policy divergence. Indeed, USDJPY risks still appear to be skewed towards the upside, with the Fed backing away from the QE option and the BoJ boasting plenty of room to expand, amend, and extend its Asset Purchase Programme (APP) as early as next month – perhaps in conjunction with the release of its Outlook Report on April 27. Nonetheless, in broader terms policymakers globally would be well aware that liquidity provision has been a key driver behind asset price gains globally in the post-crisis environment, and investors may not yet be ready to allow organic growth to become the right driver for asset prices, and there is no guarantee that such a shift in price drivers will not be volatile. Otherwise, the key release overnight was the SNB decision. The monetary policy assessment affirmed the need to keep the minimum exchange rate target at 1.20, but the growth forecast was revised higher but headline inflation forecasts lower. Price action in EURCHF post-decision suggests there were some opportunistic EURCHF longs positioned for some stronger language on the FX floor, though only to be disappointed ex-post. At this stage we find the minor central banks remain cautious in their policy outlooks and acknowledge that internal conditions are largely held hostage to external developments. The Nordic central banks, in addition to the SNB are trying to play down fears of excessive great growth due to loose policy, while openly acknowledge problems in their own property markets, in some part created by general inflows into their AAA economies and the foreign exchange developments impacting their domestic economies. Ahead today, jobless claims and PPI figures are due in the US while the Treasury will release its monthly TIC report.
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