EURCHF Spikes Higher
The Swiss franc weakened overnight after Bloomberg reported that a custodian bank plans to impose negative interest rates on CHF and DKK deposits from Nov. 1. We doubt the news will have a lasting weakening effect on the Swiss franc however given that interest rates have been negative in the interbank market for months, and those who wish to hold Swiss franc deposits for safe haven reasons are unlikely to be deterred by a 25 bp penalty. Elsewhere the Australian dollar found a bid on the back of stronger Chinese equities. Market expectations are building that some form of policy support could emerge soon, and overnight comments from PBoC Governor Zhou that the bank is willing to take a more pre-emptive and targeted approach to monetary policy reinforced these expectations. Elsewhere the monthly meeting of Eurozone finance ministers ended with little fanfare. As expected, Europe’s new bailout facility – the ESM – was formally launched. Eventually the ESM will take over from the EFSF, but both facilities are scheduled to run in tandem for at least a year, providing a combined firepower of EUR 700 bn. The headlines on Greece sounded more accommodating than usual. Greece’s finance minister emerged from the meeting noting that an extension to Greece’s adjustment program is now on the table (although we note that no agreement has yet been reached on this point). Even Eurogroup Chair Juncker conceded that he was impressed by the performance of the new Greek government and its willingness to push through reforms. Germany’s Chancellor Merkel is due to meet Greece’s Prime Minister Samaras in Athens to today but we do not expect any announcement on whether Greece will receive its next aid tranche until the troika has finished its quarterly review. Policymakers are likely to command the headlines again today with an appearance by ECB President Draghi before an EU parliamentary committee. Bank of England Governor King is also due to reflect on the subject of inflation targeting during his speech this evening.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank