SNB to Act as Needed if CHF Gains Threaten Deflation, ECB Says Rates are “Appropriate”

Fundamental Headlines

• Swiss Parliament Backs UBS Data Pact – Wall Street Journal
• Euro Soars as Spain Fears Ease  – Wall Street Journal
• Euro Bounce Boosts Stocks  - Financial Times
• Spain Plan to Publish Bank Stress Tests Puts Pressure on Europe to Follow - Bloomberg
• Stocks in Europe, U.S. Futures Rise; Euro Strengthens on Spanish Bond Sale  - Bloomberg


USD/CHF – The Swiss National Bank kept their key overnight borrowing costs at 0.25 percent in June. Policy makers accompanied the rate decision by suggesting that risks to the Swiss economy remain weighted to the downside on the back of a property market bubble amid advances in mortgage lending, while the central bank has provided excess liquidity in the markets by the use of currency interventions during the past 15 months. Indeed, policy makers have revised their inflation forecasts to 0.9 percent this year and 1 percent in 2011 (however, this remains below its 2 percent target). Nonetheless, at today’s rate announcement,  the central bank stated that risks have “largely disappeared,” and went onto add that it will take all the measures necessary to ensure price stability.  Looking ahead, the weakening of exports in Switzerland is likely to be a growing concern for the region as the country’s key trading partner, Europe, is expected to slip back into a recession by the end of the year as governments scale back stimulus measures amid ballooning budget deficits.  To discuss this and other topics, visit the Swiss franc Currency Room.

EUR/USD – During the European trade, the euro looks to have pared yesterday’s losses against the U.S. dollar as Spain reached its maximum sales target, raising 3.5 billion euros of bonds maturing in 2020 and 2041. Meanwhile, European Central Bank council member Erkki Liikanen said that “the sovereign debt crisis has increased the downside risks to the growth forecast,” and went onto add that “the securities markets program doesn’t represent a relaxation of monetary policy.” As for the economic docket overnight, Euro-zone construction in April fell 0.3 percent after climbing 6.5 percent, while the annualized reading slumped 6.1 percent subsequent to  tumbling a revised 6.0 percent in March. Going forward, fiscal tightening is surely to weigh on economic activity in the 16 member euo area as governments continue to battle boiling deficits. To discuss this and other topics, visit the EUR/USD Forum.

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Written by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast