Forex Institutional Research: Commerz Bank FX Daily
Key quotes from the Commerz Bank FX report:
G10 FX Research
JPY: The yen has eased back below the 105 mark in USDJPY. It is probably mainly the fear of disappointment on Friday (Bank of Japan’s rate decision) that is causing the yen to appreciate. Not totally uninvolved in this development seems to be an draft of the govern-ment’s stimulus plan that is making the rounds on Bloomberg. The plan does not contain any really new ideas at all and promises little less than a rehashing of the current measures. Even though there is reference to the continued cooperation with the BoJ as well as the hope of reaching the 2% inflation target, the responsibility seems to rest with the BoJ alone – as Finance Minister Taro Aso confirmed this morning. He was hoping that the BoJ would continue its “utmost efforts” to reach the 2% target. That dampens the expectation of monetary financing measures (“helicopter money”) which had been the subject of speculation recently and had contributed to the weakening of the yen to 107 in USDJPY. So now that is being priced out again. It will be interesting to see whether the BoJ will accept that without any resistance again as it has done so often this year.
GBP: Ease and ease quickly! Now even the usually rather hawkish Martin Weale, who is about to resign as member of the Bank of England’s Monetary Policy Committee, spoke out in favour of an immediate easing of monetary policy. Weale, who will leave the BoE in August, was particularly concerned about the sharp collapse of the PMI. Even though monetary policy easing is completely priced in by the market Sterling depreciated. Not without reason: the broader the support for easing monetary policy is at the BoE’s next meeting the more likely a far reaching step and the higher the willingness to introduce further easing measures at a later stage. And the more the monetary policy outlook alone justifies a weaker pound.
CHF: Yesterday’s data on the Swiss banks’ sight deposits with the Swiss National Bank (SNB) does not provide any evidence of continued FX market interventions on the part of the SNB to weaken the franc last week. The immediate rise in demand for the safe haven CHF as a result of the Brexit vote seems to be over. But the SNB remains vigilant – and is prepared to take action at any time should CHF appreciate again. As was reported yesterday SNB President Thomas Jordan underlined this once again in a speech on the fringes of the G20 summit in Chengdu, China. If necessary the SNB would be able to lower the negative interest rate of -0.75% further and still had adequate scope for interventions. As it is far from certain though how far the SNB could actually lower interest rates now without causing the stockpiling of cash on a large scale, interventions are likely to be the method of choice for now. Despite the fact that the SNB had intended to prevent interventions from getting out of hand by ending the minimum exchange rate in EURCHF in January 2015. However, even a year and a half after the end of the minimum exchange rate the SNB still needs to intervene on the market: the experience of the Brexit vote illustrates that the SNB’s tolerance of CHF strength is limited as it has immediately stabilised the EURCHF exchange rate above 1.08 again. That must mean that the SNB will prevent much lower EURCHF levels for the time being. However, it also means that the franc is principally still under appreciation pressure.
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