The British pound, Aussie dollar and gold have all fallen to 2-month lows against a resurgent US dollar, which is gaining amid rising political uncertainty.
The SNB will likely continue its policy of FX intervention without changing interest rates at today’s meeting, despite rising demand for haven currencies like the franc.
U.S stocks fell sharply on Wednesday, adding to September’s struggles, as Tech shares took another leg lower and investors fretted over uncertainty around the coronavirus pandemic and further stimulus.
Apple was down 4% while Tesla tumbled 10%. Dollar strength triggered selling in Precious Metals as Silver plunged below $23 while Gold was trading sub-$1,900. Asian shares fell on Thursday morning following a slump on Wall Street.
For the day ahead I’m concentrating on the interest rate decision from the Swiss National Bank and a breakout in the US dollar.
The Swiss National Bank decided to leave rates unchanged at −0.75% in view of the fact that the Franc is still highly valued. Given the main benchmark rate has been stuck at -0.75% for over 5-years there seemed little chance of a move either way today. The SNB’s main policy tool of late has been FX intervention.
The statement that “in light of the highly valued Swiss franc we remain willing to intervene more strongly in the foreign exchange market” still remains – especially in light of a recent pickup in haven flows to the yen and dollar that have seen those currencies appreciate – and presumably the franc too but the currency strength is not evident in EUR/CHF – one assumes because of SNB franc selling.
Economic projections were lowered at the meeting in June. Since then Q2 growth came in slightly better than forecast at -8.2% vs -8.5% but deflation got worse at -0.9% in August when -0.8% had been expected. All put together, a slight lift to Swiss growth forecasts seems most likely.
Fed Chair Jerome Powell said new fiscal stimulus would help the economy but a new package before the US election looks increasingly unlikely. The contrast between need and reality on stimulus is a key cause of market weakness.
Amazingly, yesterday President Donald Trump said that he thought the election result could go to the Supreme court – so he needed to replace RBG quickly to make sure there were nine justices. That seems pretty far fetched but adds to the fever pitch in the run up to the elections – and next week’s first debate.
Jasper Lawler – Head of Research – LCG