EUR: Lagarde will try to hold the data dependency line

As Francesco Pesole discusses in our ECB Cheat Sheet, President Christine Lagarde will try to avoid being drawn into any pre-commitment over a summer rate cut. In theory then, if she can avoid this and leave markets with a sense that the European Central Bank is truly data-dependent, short-term euro interest rates could nudge a little higher and support FX pairs like EUR/USD and EUR/CHF. For reference, the market still prices 17bp of ECB rate cuts for the 17 April meeting, whereas our team only sees the easing cycle starting in June once the ECB has a better understanding of the spring wage round. We would say that the ECB event risk (statement 14:15CET, press conference 14:45CET) proves a mild upside risk to EUR/USD - but the carpet could be pulled from under the euro should President Lagarde somehow convey the message that the policy rate will be getting cut in the summer after all. 1.0850-1.0950 looks the EUR/USD range, with

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EUR/CHF about to pop higher?

Fawad Razaqzada Fawad Razaqzada 10.02.2021 02:00
The EUR/CHF is a forgotten currency pair and rightly so because it hardly moves. So why bother writing about it? Well, I think it is about to start trending higher again and become more active. Don't expect it to behave like Bitcoin or the Dow, but it should provide a good, stable, trade for the bulls given the ongoing "risk-on" sentiment. I have recently written bullish forecasts on the GBP/CHF due to Brexit being avoided etc., and the private group ledges have benefitted from this pair already, as you can see from the following before/after charts: Source: and Source: and Source: and But like the pound, the euro could now also climb higher, especially against haven currencies like the franc and yen as we hopefully head towards more normal times ahead later this year. Anyway, straight to the point: the EUR/CHF monthly is looking bullish to me: Source: and The monthly chart shows the long-term bullish trend has been defended for several months now and rates have broken above the bearish channel. The path of least resistance is to the upside again. It is a very slow-moving pair, so if you do trade it long, make sure you don't expect the moon, and too quick. But the key takeaway point from this article is that the forgotten currency pair could be about to pop higher and become mainstream for FX traders again.
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EUR/USD Drops Below 1.07?!, GBP Weakens Against the EUR For The Third Consecutive Month, SNB Showing No Sign Of Tightening Monetary Policy

Rebecca Duthie Rebecca Duthie 27.04.2022 10:17
Summary: The US Dollar continues to strengthen. The SNB shows no intention of tightening their monetary policy to fight inflation. GBP weakens amidst a slowing economy. EURO continues to weaken against the USD. Since the market opened today, the Euro has weakened by a further 0.15%, this continuing weakening comes as a result of strong U.S interest rates with little indication of the European Central Bank (ECB) attempting to play catch up. This interest rate differential between the United States and the Euro continues to favor the US Dollar. The likelihood of us seeing the EURO strengthen against the US Dollar will probably depend on the future decisions of the Federal Reserve. The market sentiment on this currency pair remains bearish. EUR/USD Price Chart   Read next: US Dollar (USD) Continues To Trump Euro (EUR) And British Pound (GBP). EUR Fails To Get Boost Post Macron Election Victory - Good Morning Forex!    GBP Weakens against most major currencies. As of the market open this morning market sentiment for this currency pair is showing bullish signals. The GBP continues to weaken against the Euro for the third consecutive month. The weakening of the GBP comes in the middle of a sharp fall in the global stock markets, this is heavily impacting foreign exchange markets. In addition, the slowing of the UK economy is not helping the currency to recover. It is concerning that the GBP is weakening against most major currencies. EUR/GBP Price Chart CHF weakens against the Euro. Market sentiment for this currency pair is showing bullish signals as the Euro strengthens against the Swiss Franc. The inflation rate in Switzerland reached a 13 year high but the Swiss National Bank (SNB) is showing no indication of swaying from their loose monetary policy to fight against this inflation. EUR/CHF Price Chart USD/CHF The market sentiment for this currency pair is showing bearish signals since the market opened this morning. The USD has been strengthening against the CHF, this comes as a result of the hawkish Fed amidst their fight against inflation at the same time the SNB is showing no intention of increasing interest rates due to the belief that this high inflation period is temporary. In addition, the SNB said it would limit the Swiss Franc’s currency appreciation after reaching a 7 year high against the Euro after the Russia-Ukraine war. USD/CHF Price Chart   Read next: Bitcoin Price Back on The Rise, Consumer Spending In The UK Falls In Light Of Inflation And The US Dollar Continues to Strengthen    Sources:,,  
(EUR/USD, EUR/GBP, EUR/CHF) ECBs Hint To Raise Interest Rates Offers Some Relief For The Euro - Good Morning Forex!

(EUR/USD, EUR/GBP, EUR/CHF) ECBs Hint To Raise Interest Rates Offers Some Relief For The Euro - Good Morning Forex!

Rebecca Duthie Rebecca Duthie 16.05.2022 15:13
Summary: Rising of European government bond yields. Despite the Euro’s likelihood to strengthen, market sentiment is still bearish for the EUR/GBP USD continues to show bullish sentiment against the JPY Raised government bond yields allow the EUR some relief The price of the EUR/USD currency pair increased by more than 0.15% on Monday. Market sentiment for the EUR/USD currency pair has turned bullish on Monday. The European Central Banks (ECB) representative, Villeroy, hinted at the possibility of an active summer for the European bond yields, this comes amidst concerns that a weak Euro threatened price stability in the currency bloc. A weak Euro can steer the ECB away from its inflation target. The possibility of raising interest rates from the ECB is likely to instill investors with confidence in the Euro going forward and in the ECBs determination to fight against rising prices and inflation. EUR/USD Price Chart Read next: (TRX) TRON USD Decentralised Blockchain Platform That Focuses On Entertainment And Content Sharing. Altcoins: A Deep Look Into The TRON Network | FXMAG.COM EUR/GBP showing bearish signals Market sentiment for this currency pair is showing bearish signals. In general the market risk sentiment has soured over the past weeks, investors are still concerned over the lockdowns in China, the war in the Ukraine and rising interest rates at the Federal Reserve Bank. With the UK economy bordering on a recession, and Villeroy’s comments, the Euro is strengthening against the Pound Sterling, after the drop in value mid last week, the recovery is welcome. EUR/GBP Price Chart CHF not keeping up with the EUR The Euro strengthens against the CHF amidst the bullish market sentiment for this currency pair. The volatility in the forex market is felt daily by investors, as investors risk sentiment sours, the value of safe-haven currencies, like the Swiss Franc, usually strengthens. However, investor confidence in the EURO has improved as expectations for the ECB to raise interest rates increase. EUR/CHF Price Chart Read next: Altcoins: What Is Polkadot (DOT)? Cross-Chain Transfers Of Any Type Of Asset Or Data. A Deeper Look Into Polkadot Protocol | FXMAG.COM USD/JPY bullish The market sentiment for this currency pair is showing bullish signals. Despite the bullish signals, the JPY has gained on the USD on Monday. As the hawkish Fed continues, it is likely that the sentiment will remain bullish for this currency pair. If there are to be bearish signals for the pair, they are likely to be short lived if the Bank of Japan (BoJ) continue with their dovish monetary policy. USD/JPY Price Chart Sources:,,
EUR/CHF To Go Down? Swiss National Bank Decides On Interest Rate On Thursday!

EUR/CHF To Go Down? Swiss National Bank Decides On Interest Rate On Thursday!

ING Economics ING Economics 21.09.2022 15:23
The Swiss National Bank holds its quarterly monetary policy meeting on Thursday and is expected to hike its policy rate by around 75bp to 0.50%. The SNB has also been using FX policy to fight inflation. We think the SNB will continue to guide EUR/CHF lower at a rate of around 5-7% a year, in order to keep its real exchange rate stable A stable real exchange rate requires a lower EUR/CHF Since June, the SNB has been very clear: after years of fighting deflation, inflation is currently considered too high and the SNB wants to react by raising its interest rate. Inflation reached 3.5% in August, well below the inflation rate of neighbouring countries but above the SNB's target of between 0% and 2%. Since the SNB is no longer fighting an overvalued exchange rate, but rather believes that a strong Swiss franc is favourable, it can now raise interest rates quickly, without necessarily following the ECB's moves. This is why it moved ahead of the ECB by raising rates by 50 basis points in June. There is little doubt that the SNB will raise rates by at least 75 basis points at Thursday's meeting. A 100 basis point hike like the Riksbank did is not out of the question, especially since the SNB only meets once every quarter, unlike other central banks. However, with inflation "only" at 3.5% in Switzerland and the strength of the Swiss franc allowing imported inflation to fall, 100 points might be a bit too much of a move, so a 75 basis point hike remains more likely. Turning to FX matters, EUR/CHF has come steadily lower since June. Driving this trend have been some key statements from the SNB that (i) it wants to keep the real exchange rate stable and (ii) it will intervene on both sides of the FX market. In practice, we think that means the SNB wants to manage EUR/CHF lower. At the heart of the story is a more hawkish SNB and its view that as a small, open economy a weaker real exchange rate is inappropriate right now in that it would be providing additional stimulus at a time when CPI is overshooting its close to, but not over 2% target. What does a stable real exchange rate mean in practice? In the case of Switzerland, where inflation amongst its trading partners is running nearly 5% higher than in Switzerland, it means that a nominal 5% appreciation of the trade-weighted exchange rate is required to keep the real exchange rate stable. Rather conveniently, as we show in our chart below, the recent bout of Swiss franc strength leaves the trade-weighted Swiss franc around 5% stronger on a year-on-year basis. Not being a member of the G20 grouping allows Switzerland a little more latitude with its FX practices. And the above analysis suggests the SNB may be running a managed float here. With huge FX reserves of close to CHF900bn, the SNB remains a major force to be reckoned with and has the firepower to back up this managed float. Hence the remarks from the SNB in June that it planned to intervene on both sides of the market. Like the Czech National Bank (CNB), the SNB has previously experimented with FX floors, but the managed float underway today is more akin to activity undertaken by the Monetary Authority of Singapore (MAS) which more formally uses a managed float in its monetary toolkit. CHF: Real exchange rate stable YoY, nominal exchange rate +5% YoY Source: SNB, ING forecasts What does this mean for EUR/CHF? Away from the arcane concept of a real or nominal trade-weighted Swiss franc, what does this all mean to the more familiar EUR/CHF? First, it is important that the two biggest weights in the trade-weighted Swiss franc are: (i) the euro at 51% and (ii) the dollar at 23%. If the SNB wants a stronger trade-weighted Swiss franc then clearly EUR/CHF and USD/CHF are going to have to play their parts. Secondly, we have said that the SNB wants to keep the real CHF stable. In the chart above, we present our inflation forecasts, which show the inflation differential staying at around 5% into 2Q23 and only dropping back to zero by end 23. The argument then is that the SNB continues to manage the Swiss trade-weighted index firmer at this 5% year-on-year rate into next Spring before slowing the pace of appreciation. Thirdly, there are many moving parts in the trade-weighted exchange rate, but crucially our stronger dollar view means that USD/CHF may not come lower as the SNB wishes. This places a greater burden on the adjustment in EUR/CHF. Assuming USD/CHF stays flat, EUR/CHF would need to fall at around a 7% per annum rate to get the trade-weighted CHF stronger by 5%. Bringing it all together – and assuming that the SNB has the wherewithal to control EUR/CHF – we can argue that to achieve its objective of keep the real exchange rate stable according to our inflation forecasts, the SNB could be managing EUR/CHF on something like the following path… 4Q22 0.93, 1Q23 0.92, 2Q23 0.91 and flat-lining near 0.90 in 2H23. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
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Swiss National Bank Decided On Interest Rate. Let's Check EUR/CHF Reaction To The Hike And Comments

ING Economics ING Economics 22.09.2022 14:39
The Swiss National Bank raised interest rates by 75 basis points to 0.5% as planned, bringing the rate into positive territory for the first time since 2015. A reverse tiering system and a reduction in liquidity were also announced. EUR/CHF suffered a short squeeze on the news, but should come lower again 75bp increase As expected, the SNB has just announced an increase of 75bp in its key interest rate, bringing it to 0.5%. The rate in Switzerland is therefore back in positive territory for the first time since January 2015 and is no longer the lowest in the world. It is the end of an era. This rate hike is intended to combat inflation in Switzerland, which reached 3.5% in August, and is therefore higher than the SNB's objective of having inflation between 0 and 2%. Thanks to a more favourable energy mix, a lower share of energy in consumption, and the strength of the Swiss franc, which limits imported inflation, inflation in Switzerland is nevertheless still much lower than in neighbouring countries. The SNB believes that the risk of second-round effects is significant. The SNB now expects inflation to reach 3.0% in 2022, 2.4% in 2023 and 1.7% in 2024. Against this background, it says it "does not rule out further rate hikes in the coming months". Reverse tiering and liquidity reductions Interestingly, the SNB also took two other important decisions. First, it will introduce a two-tier system for the remuneration of sight deposits held by banks and other financial market participants. From now on, they will be remunerated at the SNB's key interest rate (0.5%) up to a threshold, and the part above this threshold will be remunerated at a rate of 0%. The threshold is currently set at 28 times the reserve requirement. It is therefore a reverse tiering system. The aim of this system is, according to the SNB, to encourage money market operations, even in a situation of excess liquidity. At first sight, this may seem surprising, as it could push money market rates to remain below the SNB rate. However, this system goes hand in hand with the desire to reduce liquidity in the market, which in practice should severely limit the proportion of holdings bearing 0% interest. To reduce liquidity, the SNB will conduct open market operations (repo and T-bills). According to the SNB, the aim of this is to ensure that money rates reach the SNB's key interest rate as quickly as possible. Further rate hikes to come in December Given the inflation forecasts, there is little doubt that the SNB will continue to raise rates in the future. Unlike other central banks, the SNB only meets quarterly, so the next meeting will be in December. By then, the European Central Bank and the Federal Reserve will probably have raised rates by another 75 basis points in October and November and will raise rates again in December. The SNB could follow suit, probably raising its rate by 75bp in December as well. This is likely to be the last rate hike and we do not expect anything more in 2023. Indeed, the deteriorating economic outlook and the expected decline in inflation in 2023 should be enough to leave the SNB comfortable with a rate of 1.25% for the year as a whole. EUR/CHF: Short squeeze should not last EUR/CHF rallied around 1.5% following the 75bp hike and comments from SNB Chairman Thomas Jordan that it would intervene against excessive moves. The squeeze probably owed to some positioning for a 100bp rate hike today, following the Swedish Riksbank's 100bp hike earlier in the week. Like the Riksbank, the SNB now only has one further rate meeting this year. However, we do not think this EUR/CHF rally will last. We think the SNB is happy to guide EUR/CHF lower as a means to keep its real exchange rate stable - given trading partner inflation is some 5% higher than in Switzerland. At the start of the year, few would have believed the SNB would be comfortable with EUR/CHF at today's level of 0.95/0.96. Equally, we think the case is growing for EUR/CHF to be trading 0.93 by the end of the year and conceivably 0.90 by next summer. Developments to the East only add to the case to hold the Swiss franc now.  Read this article on THINK TagsSwitzerland Swiss National Bank SNB CHF Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
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EUR/USD Range-bound as ECB Rate Hikes Loom: Key Updates on Eurozone GDP and SNB Policy, NOK Outlook Revised with Potential Rate Increases

ING Economics ING Economics 09.06.2023 08:40
EUR: Range-bound into next week EUR/USD softened on the BoC rate hike yesterday as the implications for Federal Reserve policy proved the larger driver. The softening in EUR/USD did mask some further hawkish rhetoric, where the European Central Bank's influential Isabel Schnabel was still sounding pretty hawkish. Please see our full ECB preview here.   Today's session sees some revisions to eurozone 1Q GDP data - expected to be revised down after German figures. However, the market still looks comfortable pricing in two further 25bp ECB rate hikes by the late summer. Expect EUR/USD to remain becalmed well within a 1.0650-1.0750 range.   Elsewhere, we hear from Swiss National Bank (SNB) President Thomas Jordan at 1405CET today. The SNB is widely expected to raise the policy rate by 25bp to 1.75% on 22 June. Recent CPI releases have, though, shown core inflation dipping below 2.0% - a move that reduces the need for the SNB to drive the nominal Swiss franc any stronger. EUR/CHF could drift to 0.9800 should President Jordan acknowledge that better CPI trend today. Chris Turner     We have updated our calls on Norges Bank and NOK. As discussed in this note, we now expect Norges Bank to take rates to 3.75% (two more hikes from current levels) on the back of NOK’s weakness and we see non-negligible risks of a 4.00% peak rate. The short-term outlook for the krone remains clouded: the threat of more Fed tightening is keeping the illiquid and high-beta NOK under pressure, and domestically Norges Bank daily FX purchases have only been trimmed marginally in June. We expect rate hikes and potentially larger cuts to FX purchases later this year to pair with a solid set of fundamentals and a stabilisation in risk sentiment and bring EUR/NOK closer to 11.00 in late 2023.
EUR/USD Stabilizes as Eurozone Recession Takes Backseat, GBP Undervalued Against EUR/GBP

EUR/USD Stabilizes as Eurozone Recession Takes Backseat, GBP Undervalued Against EUR/GBP

ING Economics ING Economics 09.06.2023 10:06
EUR: Shrugging off the recession EUR/USD is back around the 1.0800 handle, with the moves once again coming entirely from the USD leg. Domestically, the news of the eurozone entering a technical recession after the 1Q GDP revision was understandably overlooked by the market, and may well be overlooked too by an inflation-focused ECB next week (here is our economist’s meeting preview).   There are no domestic drivers for the euro today, and in line with what we highlighted in the USD section above, we expect some consolidation around current levels in core dollar pairs. EUR/USD could stabilise marginally below 1.0800.   Elsewhere in Europe, we saw EUR/CHF come under pressure yesterday following hawkish comments from the Swiss National Bank Governor Thomas Jordan, where he highlighted how current rates are low and “it’s not really a good idea to wait then have higher inflation later”. The SNB will announce policy on 22 June, and we expect a 25bp hike following a similar move by the ECB. It appears however, that the market is pricing in more beyond that hike, which is not part of our baseline scenario at the moment.   GBP: EUR/GBP is undervalued EUR/GBP has moved back below 0.8600 after a very small rebound and we estimate the pair to be trading at around a 2.0% short-term undervaluation at the current levels, which falls beyond the 1.4% 1.5 standard-deviation lower-bound.   We remain of the view that EUR/GBP will increasingly struggle to find more bearish momentum now that markets are already pricing in 100bp of Bank of England tightening and the pair is already in undervaluation territory. On the cable side, we expect some stabilisation around 1.2550-1.2600. The UK calendar is empty today.
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EUR: Soggy Sentiment Amidst Soft Data and Tighter Lending Standards

ING Economics ING Economics 26.07.2023 08:40
EUR: Soggy The ECB's euro trade-weighted index has fallen 1.3% so far this week. That is quite a sharp move. It seems investors have been unnerved by both the soft July PMI data and the ECB bank lending survey. The latter showed much tighter lending standards and a sharp decline in loans, particularly among businesses. There is not much European data today and instead, it looks as though EUR/USD will continue to trade on the soggy side through the session – especially since some of the China stimulus-powered rally in related asset classes (e.g., China mainland equities) looks to be petering out.  In our Fed preview published last week, we had targeted EUR/USD at 1.1050 on a slightly hawkish Fed meeting today. Softer European data has already brought us to that level. That suggests risk in EUR/USD towards 1.1000 on the back of the Fed at 20CET today – assuming the FX options market is correctly pricing a 60 pip range for EUR/USD over the next 24 hours. Elsewhere, the softer euro has seen EUR/CHF dip to 0.9550. Swiss National Bank (SNB) sight deposit data released on Monday suggested the SNB was still selling FX reserves last week to get the trade-weighted Swiss franc stronger to fight inflation. The SNB does seem to like complete control over this currency pair and while the direction of travel may be 0.9500 or even last September's low near 0.9415, expect the moves to be very gradual.
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EUR: Balancing Hawkishness and Quantitative Tightening at ECB Meeting

ING Economics ING Economics 28.07.2023 08:26
EUR: Hawkish ECB, but will we hear more about QT? Here is our full European Central Bank (ECB) preview and also a look at some of the key variables that could drive a reaction in eurozone FX and rates markets. The challenge now for the ECB is to deliver a hawkish message – a 25bp hike and the promise of more still to come – while balancing the risks that its growth forecasts are too high. One common pushback from customers against our bullish EUR/USD view is that ECB hawkishness will crumble early and not allow US and eurozone rate differentials to narrow as we expect. Assuming the ECB does maintain market expectations that the deposit rate (now 3.50%) will be close to 4.00% by the end of the year, what else could we see? One intriguing idea is that the hawks, in exchange for backing off from subsequent rate hikes, will be given something on quantitative tightening. Currently, re-investments of the APP scheme ended last month. PEPP reinvestments are targeted to continue until the end of 2024. Could PEPP reinvestments be cut shorter, or could the discussion move onto outright asset sales – moves that might upset both peripheral government bond markets and European credit markets? The market reaction might be tricky, but presumably, EUR/CHF could stay under pressure should this be the case. We do not have a strong conviction call on EUR/USD today but would say 1.1150 looks good intra-day resistance and 1.1000/1020 is now the lower end of the near-term trading range.
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EUR/USD Undergoing Third Significant Correction of the Year amid Dovish ECB Expectations

ING Economics ING Economics 03.08.2023 10:19
EUR: An episodic correction EUR/USD is currently going through its third significant correction of the year. The corrections in February and May were worth 5% and 4%, respectively. The current correction is around 3%. These corrections largely come on the back of heavy one-way positioning, given that most expect EUR/USD to be higher by year-end - the current consensus is for 1.12. We would warn against getting too pessimistic on EUR/USD because of the European Central Bank. True, the market has taken 15bp out of the expected ECB tightening cycle over recent weeks, but as our colleague Peter Vanden Houte outlined yesterday, core inflation is still high and the September ECB meeting should still be considered 'live' for a 25bp rate hike.  For today, the eurozone calendar is light and EUR/USD will again be driven by US inputs. Unless US activity data surprisingly softens today, expect EUR/USD to continue to press the 100-day moving average near 1.0930, below which there is an outside risk to the 1.0850 area. We do, however, believe this dip should be temporary and continue to forecast 1.12 by the end of September on further signs of US disinflation and finally some softer US activity data, too. Elsewhere we see Swiss July CPI data today. The headline rate is expected to fall further to 1.7% year-on-year and the core to remain at 1.8%. Despite this, the Swiss National Bank (SNB) is expected to remain hawkish and hike 25bp at its September meeting. The SNB also continues to guide the nominal Swiss franc higher. Given that USD/CHF is now rallying, the SNB may need more of that trade-weighted Swiss franc appreciation to come via EUR/CHF. That could mean that 0.9650 now proves the top of a new - and lower - 0.9500-0.9650 range.
EUR/USD Faces Pressure Amid PMI Releases: Is More Downside Ahead?

EUR/USD Faces Pressure Amid PMI Releases: Is More Downside Ahead?

ING Economics ING Economics 25.09.2023 11:08
EUR: More pain from the PMIs? EUR/USD remains under pressure as dollar strength dominates. The euro faces an event risk from today's releases of the flash PMIs for September. It really has been the PMI releases that have hit the euro since the summer. Despite all this pessimism about the euro, however, the ECB's trade-weighted euro is only 2% off its highs in July. This can probably be read as both the strong dollar being the dominant story and the eurozone's trading partners (Europe and China) faring as poorly as the eurozone. For EUR/USD, an imminent turnaround looks unlikely and support at 1.0600/0610 looks the last barrier before what seems the more likely dip to the 1.05 area. As discussed in the Swiss National Bank (SNB) review, the dovish turn from the SNB did not do too much damage to the Swiss franc since the SNB is still selling FX. Expect EUR/CHF to get back to 0.95 over the coming months. Chris Turner Elsewhere, both the Riksbank and Norges Bank hiked by 25bp yesterday, in line with expectations. The Riksbank signalled close to a 50% implied probability of another hike in its rate projections, matching market pricing. The Governor said there is a high probability of more hikes, but there seems to be low conviction within the Board. As discussed in our meeting review, this was a missed opportunity for policymakers to deliver real support to the krona, which averted a slump only thanks to the announcement that FX reserves will be hedged. Please see the background on that topic here. SEK remains vulnerable in the near term, and EUR/SEK can break the 12.00 ceiling soon. Norges Bank was more hawkish, as it explicitly signalled another hike should be delivered in December, although that should be the last one. EUR/NOK was only modestly offered and remains tied to the 11.50 level: a confirmation that a NOK rebound (or further depreciation) relies almost entirely on external factors. Francesco Pesole
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The Swiss National Bank Adopts a Slightly More Dovish Tone Without Imminent Rate Cuts

ING Economics ING Economics 14.12.2023 14:13
The Swiss National Bank appears slightly more dovish The SNB kept its key rate unchanged at 1.75%, as expected. Its message is slightly more dovish, but it doesn’t mean rate cuts are imminent.   A slightly more dovish message As expected, the Swiss national bank decided to keep its key rate unchanged at 1.75% at its December meeting, its level since June 2023. The SNB's communication is more dovish, indicating that they are clearly not considering any further rate hikes. Against a backdrop where consumer price inflation stood at 1.4% in Switzerland in November, the 6th consecutive month below 2%, this is not surprising. But the SNB is going a little further than that. First, it has revised its inflation forecasts downwards. It is now forecasting average inflation of 2.1% in 2023, 1.9% in 2024 and 1.6% in 2025, compared with 2.2%, 2.2% and 1.9%, respectively, at its previous meeting. The SNB is still expecting inflation to rebound in the coming months on the back of higher energy prices, rents and VAT. Nevertheless, it acknowledges that inflation has been weaker than expected in recent months and that "In the medium term, reduced inflationary pressure from abroad and somewhat weaker second-round effects are resulting in a downward revision". The inflation forecasts for the entire period are, therefore, within the price stability range, defined by the SNB as being between 0 and 2% inflation. According to the SNB, the balance of risks for inflation forecasts is also well balanced, with the risks of an upside surprise being as great as those of a downside surprise. In addition, although it still states that it is "willing to be active in the foreign exchange market as necessary", it no longer explains how. In recent quarters, the SNB has been buying Swiss francs to reinforce its appreciation, which has had the effect of reducing imported inflation but has also worsened the competitiveness of domestic exporters. The SNB no longer seems to favour the idea of an even stronger Swiss franc and could now start selling the currency again, which would support exports and, therefore, economic growth in Switzerland. This is a major change for the SNB.   But rate cuts are not just around the corner The message is, therefore, slightly more dovish. However, there is nothing to suggest that rate cuts will be forthcoming soon. Firstly, the SNB's target is asymmetrical, as it wants to achieve inflation of between 0 and 2%. Today's inflation forecasts fall squarely within this target, and the SNB expects inflation to be at 2% in the second and third quarters of 2024. These inflation forecasts offer little argument for an imminent rate cut. In addition, the SNB has a tool to steer monetary policy other than its policy rate: its interventions on the foreign exchange markets. It is likely to use this instrument first and start selling Swiss francs before considering rate cuts. It confirmed this between the lines during the press conference. Finally, the SNB's key rate is at 1.75%, a fairly unrestrictive level close to the level of expected inflation. Past interest rate rises are, therefore, much less damaging to the economy than they are in the United States and the Eurozone.   Against this backdrop, the SNB is likely to take a much longer pause than the Fed and the ECB. Rate cuts will probably come, but much later than the other central banks. At this stage, we are expecting the first rate cut to come in December 2024, compared with the first rate cuts expected in the first half of the year for the Fed and the ECB. Moreover, the scale of the rate cuts is likely to be much smaller than elsewhere. Total rate cuts in 2024 and 2025 could be in the region of 50bp or even a maximum of 75bp in Switzerland.   FX: SNB no longer focusing on FX sales The SNB confirmed today that it is no longer focusing on FX sales. This is consistent with our EUR/CHF update in our 2024 FX Outlook published last month and supports our view that EUR/CHF can remain stable near 0.95/0.96 next year. 
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EUR Outlook: Gauging ECB Pushback Amid Dovish Market Expectations

ING Economics ING Economics 14.12.2023 14:19
EUR: Gauging the ECB pushback Attention turns to the ECB today. Investors are currently pricing in over 125bp of rate cuts next year, with the first full cut priced for the April meeting. We think that is far too early. However, the question today is how far ECB President Christine Lagarde wants to push back against that. Feeding into the story will be revisions to ECB staff growth and inflation forecasts. The larger the downward revisions to both growth and inflation (e.g. if the 2025 CPI forecast gets cut below 2%), the more euro money market rates will soften, and the euro will lag other currencies as they advance against the softer dollar.  Our ECB market preview felt there were upside risks to EUR/USD going into this ECB meeting. EUR/USD has already enjoyed a strong rally on the back of the softer US rate view, and assuming the ECB does not fully embrace dovish expectations for next year, we would say the bias for EUR/USD lies towards 1.0945/65 and probably 1.10 multi-day. Over recent months, we have been forecasting EUR/USD to end the year somewhere near 1.07. After last night's Fed shift, we expect EUR/USD ends the year closer to 1.10 now. Also, today look out for the Norges Bank and Swiss National Bank meetings. Presumably, the SNB will cut its inflation forecasts. Having consistently sold FX since last year – delivering nominal Swiss franc appreciation and keeping the real Swiss franc stable – we are interested to hear today whether the SNB has been both buying and selling FX. If it confirms it is on both sides of EUR/CHF, rather than just being a EUR/CHF selle, and we suspect EUR/CHF can jump back up to the 0.9550 area.
EUR/USD Rejected at 1.1000: Anticipating Rangebound Trading and Assessing ECB Dovish Bets

EUR/USD Rejected at 1.1000: Anticipating Rangebound Trading and Assessing ECB Dovish Bets

ING Economics ING Economics 12.01.2024 15:28
EUR: Rejected at 1.1000 Yesterday, EUR/USD was rejected at the 1.1000 key resistance level, and in line with our dollar view, we now expect some more days of rangebound trading, with some modest downside risks for EUR/USD. One factor that we wish to keep highlighting, though, is the rather wide potential for the euro to benefit from an unwinding of ECB dovish bets in the coming months. Markets continue to price in 140bp of easing by year-end, while our economics team only forecasts 75bp. We expect to see those benefits to the euro more clearly in pairs such as EUR/CHF in the short term rather than in EUR/USD, at least until a clearer dollar downtrend emerges (in our view, a 2Q story). Other than some final December CPI reads in France and Spain (which shouldn’t move the market), the eurozone calendar is empty today. The next key data input for the euro is the German ZEW on Tuesday. We’ll keep monitoring ECB speakers to make sense of what is the “consensus” degree of rate-cut pushback the bank wants to convey to markets. Today, we’ll hear from Chief Economist Philip Lane. Elsewhere in Europe, Sweden’s Riksbank releases FX sales figures for the week around Christmas today: expect a low number, or even zero, due to low liquidity conditions. In a piece we published this week, we discuss how we expect the end of Riksbank FX sales by early February, hurting SEK in the crosse
EUR: Lagarde Balances Data Dependency Amidst Rate Cut Speculations

EUR: Lagarde Balances Data Dependency Amidst Rate Cut Speculations

ING Economics ING Economics 25.01.2024 16:04
EUR: Lagarde will try to hold the data dependency line As Francesco Pesole discusses in our ECB Cheat Sheet, President Christine Lagarde will try to avoid being drawn into any pre-commitment over a summer rate cut. In theory then, if she can avoid this and leave markets with a sense that the European Central Bank is truly data-dependent, short-term euro interest rates could nudge a little higher and support FX pairs like EUR/USD and EUR/CHF. For reference, the market still prices 17bp of ECB rate cuts for the 17 April meeting, whereas our team only sees the easing cycle starting in June once the ECB has a better understanding of the spring wage round. We would say that the ECB event risk (statement 14:15CET, press conference 14:45CET) proves a mild upside risk to EUR/USD - but the carpet could be pulled from under the euro should President Lagarde somehow convey the message that the policy rate will be getting cut in the summer after all. 1.0850-1.0950 looks the EUR/USD range, with outside risk to 1.0980/90 should the ECB pushback against easing expectations prove surprisingly effective. Elsewhere Norges Bank announces rates today. The policy rate was hiked to 4.50% in December - so it would seem far too soon for Norges Bank to embrace any idea of easing. However, the Norwegian krone has been suffering a little this year as the backup in market interest rates has hit the risk environment. In all, we suspect EUR/NOK needs to trade a little longer in this 11.35-45 range.

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