Swiss Franc Weakens On Dovish Statement By SNB

Swiss Franc Weakens On Dovish Statement By SNB
June 14, 2019

 

The Swiss franc rallied yesterday as risk aversion mood grappled the Forex market. However, the Franc was unable to maintain the gains as the focus returned to the monetary policy meeting of the Swiss National Bank and the disappointing domestic macroeconomic data. From a high of 0.9960, the USD/CHF pair fell to a low of 0.9918, before recovering to 0.9945 levels.

As widely anticipated, the SNB maintained its monetary policy and kept the benchmark interest rates in negative territory. In the case of three-month Libor, the central bank also announced a new benchmark rate to substitute the target range.

The Swiss National Bank issued the following statement regarding policy rate: “The Swiss National Bank is today introducing the SNB policy rate. From now on, it will use this rate in taking and communicating its monetary policy decisions. The SNB policy rate replaces the target range for the three-month Libor used previously, and currently stands at −0.75%.”

The SNB also elaborated on the decision: “The reason for introducing the SNB policy rate is that the future of the Libor is not guaranteed. The UK’s Financial Conduct Authority will only ensure that the Libor is maintained through to the end of 2021.”

The Swiss central bank also hinted that it would continue to adopt an expansionary monetary policy as the Franc strengthened mainly due to trade wars. The central bank opined that the Franc is still overvalued and the currency market remains volatile. To ensure the competitiveness of local businesses and decrease pressure on the currency, the SNB has decided to maintain interest rate and intervene in the Forex market as and when necessary.

The central bank clarified its position on market intervention with the following statement: “The SNB’s expansionary monetary policy remains necessary against the backdrop of the current price and economic developments. On a trade-weighted basis, the Swiss franc is somewhat stronger than in March and is still highly valued. The situation on the foreign exchange market continues to be fragile. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary remain essential in order to keep the attractiveness of Swiss franc investments low and thus ease pressure on the currency.”

Separately, the Swiss Federal Statistical Office stated that the Producer Price Index remains unchanged in May from the earlier month. Before the data was published, analysts had anticipated the PPI to increase by 0.1%.

The SNB’s dovish statement and weak economic data are expected to keep the Franc range bound with a slight bearish bias.

Technically, the USD/CHF pair is receiving solid support at 0.9920 levels. The currency pair has also closed above the 50-day moving average. The momentum indicator is ascending. As a result, we can expect the USD/CHF pair to move up in the short-term.

CHF - technical analysis - 14th June 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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