Morning Report: 16 January 2015

16th January 2015 By: Admin

CHF We open today’s morning report with the Swiss franc, as the Swiss National Bank’s shock decision to end its currency floor against the euro sent markets into turmoil. Previously, the SNB had committed to selling vast swathes of its national currency in an attempt to defend the Swiss franc from going any lower than a rate of 1.20 against the euro. However, SNB Chairman Thomas Jordan stated that the policy was “not sustainable” in the medium-term, and therefore, though it might cause “short-term pain”, they had decided that it was no longer a viable policy option. On the back of the announcement, the EURCHF rate crashed 40%, with markets seeing extreme fluctuations as panicked traders rushed to cover open positions. By the afternoon markets had settled down somewhat, but EURCHF still ended up about 20% lower than it had opened the day’s trading.

GBP No data or policy announcements for the UK yesterday meant that the pound was out of the markets focus. With no data due out today either, sterling is likely to inherit its direction from moves on the other major currency pairs.

EUR The euro was the markets biggest loser from the Swiss National Bank’s announcement yesterday. The majority of market participants had not hedged any sell EUR buy CHF positions, as the SNB had not been expected to remove its currency floor for at least two years. As a consequence, when the SNB revealed that they would no longer be intervening in the currency markets, this left huge swathes of the market exposed, and people scrambling to cover their positions. This widespread euro selling caused the single currency to weaken sharply, positing fresh lows against the US dollar and GBP in particular. The decision was also seen as further confirmation that the European Central Bank are indeed readying themselves to announce a vast monetary easing programme next week, and so the euro is likely to remain under pressure in today’s trading too.

USD A raft of economic data was released from the US yesterday, though it had little effect on a market still shell-shocked by the Swiss National Bank. Unemployment claims were revealed to have climbed week-on-week, but producer price inflation and manufacturing figures were slightly over expectations, and thus markets were still happy to keep buying in to the greenback. This afternoon, we have inflation numbers for the US economy as a whole, as well as consumer sentiment and industrial production figures.

UK news

  • Telegraph. London house prices to fall up to 5pc as sellers abandon the market: New stock is drying up as vendors sit tight until the general election, says RICS.
  • Reuters. First BoE hike pushed back to Q4, but close call: The Bank of England will still raise interest rates from a record low this year but whether it does so in the third or fourth quarter may be too close to call, according to a Reuters poll.
  • Reuters. Profitability of UK services firms hits record high: Profits made by British services companies soared in the third quarter to the highest level since records started 18 years ago, but rates of return for North Sea oil and gas companies sank to an all-time low, data showed on Wednesday.