Market Drivers June 21, 2018
Dollar well bid across the board
SNB stays pat
Nikkei 0.61% Dax -0.04%
Europe and Asia:
CHF SNB -0.75%
GBP BOE 7:00
USD Philly Fed 8:30
The dollar was well bid across the board today as US 10 year rates climbed towards the 2.95% level. Both kiwi and Aussie were noticeably weaker as interest rate differentials continue to weigh on the pairs and kiwi is now within striking distance of long-term support of .6800.
There was little on the calendar today save for the SNB rate decision which came in as expected at -0.75%. Despite improving economic conditions in Switzerland the SNB is doggedly pursuing its negative rate policy s the Swissie remains well bid. With EURCHF hovering around the 1.1500 level the SNB is no rush to begin tightening and is unlikely to do so until EURCHF trades above 1.2000 for a considerable period of time. For now such a scenario is highly unlikely given ECB’s decidedly dovish stance on rates and the ongoing political turmoil in Italy, the logjam over migrant policy in Germany and the ever-present threat of hard Brexit in UK. Give the risk factors in the region SNB will maintain its negative rates for quite a while and the only thing that could prod Swissie lower would be the ever-growing negative carry trade against the buck.
Elsewhere, all eyes will be on BoE today with market anticipating no change from Mr. Carney and company. The key focus will be on the composition of the vote which tallied 2-7 against last time. Any increase in members looking to hike will raise expectations for an August hike and could put a strong bid into cable which has been battered this week hitting 7-month lows as it approaches the 1.3100 figure.
Ahead of the BOE markets remain highly skeptical of any BOE move given the lackluster wage data and the growing risk of a hard Brexit. Still, any hawkish surprise could spur a short covering rally that could could push cable towards 1.3300, while a dovish stance will allow bears to test the 1.3100 support as the day proceeds.