SNB on the dovish side
As broadly expected the Swiss National Bank maintained interest on sight deposits at -0.75% and the target for the three-month remains at between -1.25% and -0.25%. The central bank also reiterated that it will remain active in the foreign exchange market should further developments justify it. So far, the statement was quite similar to the previous one, which was released in March. Overall, the statement is more dovish than the previous one.
On the inflation front, short-term conditional forecast have been revised to the upside – with Q2, Q3 and Q3 2018 figures being increased to 0.9% from 0.6% in June – following the rise in crude oil prices. However, the SNB lowered its expectations for the end of 2019 amid lower growth expectation in the Eurozone and persistent political tensions among EU members – more specifically the political uncertainty in Italy.
In light of those developments – downward revision in inflation forecast for 2019, political uncertainties in Italy, stalling growth in the EU and trade war between the largest economies in the world – the SNB has every reason to delay further rising rates.
Accordingly, we have revised our EUR/CHF expectations to the downside. We do not expect the single currency to break the 1.20 threshold before this autumn at the earliest. The September ECB meeting will be determinant, as the SNB won’t relax its efforts before the ECB takes a clear path toward monetary policy normalisation.
BoE having political complexité
Political activities continues to make the BoE job more difficult. What seems like a perpetual dance with political crisis, UK PM once again avoided a break down in government with a defeat of a bill that would give MP the power to stop Britain leaving the EU. But in this rolling crisis we know tis only a matter of time before the next political crisis appears. For the BoE this make calculating policy difficult. Since the BoE last meeting UK growth has moderated and expected recovery from harsh winter weather has been slow moving. With downgrading in GDP growth for 2018 and limited wage pressure the BoE is unlikely to move before August while that data is even challenged. Of course throwing in UK-EU Brexit negotiation just ramps up the uncertainty level. For today meeting we are expected no changes with acknowledge that economic data has not firmed as expected. GBPUSD failure to move above 1.3150 indicated extension of bearish momentum.
Mexican peso in agitation amid upcoming monetary and political events
Elections in Mexico are approaching and it is no lull for the Mexican peso. Among the four Presidential candidates, polls are favoring Andrés Manuel López Obrador (called AMLO), former Mexico City mayor and member of the National Regeneration Movement, a left-wing political party that attempts its first presidential elections on July 1, 2018.
Accordingly, today’s Bank of Mexico monetary decision remains subdued. Expectations tend towards a 25 bps rate hike (current: 7.50%) due to Mexican peso contiunued weakness and inflation data above 3% target, estimated by May consumer price index y/y at +4.51%. The room for maneuver remains however tight, as the overnight rate already rose by 25 bps on February of this year and approaches its historical highs from 2008 (8.25%), a threshold that the central bank would avoid at all cost.
Due to approaching general elections on 1st July, we would rather vary the statement and wouldn’t be too confident that today’s monetary policy meeting will end up with a rate hike. This could occur in 2nd August 2018.
Still, the impact on the peso could be brutal. Currently trading at 20.4583 (year-to-date: +4.06%), the USD/MXN could strengthen strongly with a no-go decision, as the pair approaches its 22.0368 historical high (19/01/2017). Expected to strengthen in the short-term, the USD/MXN is approaching hourly resistance at 20.9605 (15/06/2018 high), heading along 20.5765.
