USD takes a hit as Trump fires another of his adviser
Financial markets are encountering turbulence on the last trading day of the week amid allegation that Trump has fired his national security adviser H.R. McMaster. After gaining ground against most of its peers, the US dollar took a nosedive during the Asian session, as investors rushed into safe-haven assets ahead of the weekend.
The Japanese yen outperformed its G10 peers as it rose 0.56% against the buck, while the Swiss franc appreciated 0.25% with USD/CHF sliding to 0.9490. However, the latter is still trading within its weekly range in between 0.94 and 0.9535. On the medium-term, the bias remains on the upside for the pair, with the 0.96-0.97 area as closest resistance area.
US Treasury yields have stabilised since mid-February with the 2-year yield trading around 2.28% and the 10-year one treading water around 2.82%. Investors are now waiting to get further clarity regarding the Fed’s plan for the rest of the year. However, the constant increase in short-term interest rates suggests that Powell’s message has been heard loud and clear. The 3m Libor hit 1.78%, while the 3m OIS swap rate has been increasing continuously for the past seven months and currently stands at 1.68%, suggesting that market participants are increasingly confident that the Fed will follow up with another rate hike in June.
We think that the buck is bias to the upside, as investors will re-focus on the Fed’s policy tightening and put the political mess aside. However, we maintains our bullish view on EUR/USD as the ECB is also moving, slowly though, towards tightening.
Swiss National Bank interest rate maintained amid global trade war risks
Facing a strong depreciation against the single currency (EUR/CHF at 1.17; +9.04% in 1 year) and anticipating the risk of a potential trade war escalation, the Swiss National Bank finally took the decision to maintain its deposit rate stable at -0.75%. The last rate change occurred in January 15th 2015.
The SNB made it clear that the CHF is still overvalued and confirmed its concern about the forex market, which remains choppy, a situation that could completely change the story for the CHF in the event of volatility escalation. Considered as a safe haven asset, the CHF (incl. Gold) remains very sensitive to its macro environment, thus the reason of maintaining CHF-nominated investment attractiveness as low as possible.
As the Swiss economy continues its expansion (4Q 2017 GDP: 1.90%), inflation expectations are decreasing on the other side. SNB projections view the inflation rate at 0.60% (previously: 0.70%) for 2018, 0.90% in 2019 and 1.90% in 2020 with current interest rates unchanged.
Gaining strong momentum since the beginning of March 2018, EUR/CHF is trading sideways since March 7th 2018. The pair is currently contained between hourly support and resistance given at 1.1677 (07.03.2018 low) and 1.1735 (08/03/2018 high) and expected to remain so in the short-term.
