The is a little stronger as investors reassess the immediacy of a US slowdown and what it means for . One early highlight for Europe is the Swiss National Bank meeting. Hardly anyone expects the policy rate to be cut into negative territory, but the remains strong, and the SNB could try tweaking rates on excess reserves
USD: Bears Are Getting Hungry
We don’t really buy into the story that geopolitics has driven the US dollar stronger this week. If investors were substantially more worried about military conflict at NATO’s eastern border, CEE currencies would be a lot weaker, as would German equity markets. Instead, this week’s US dollar strength is probably a function of not enough bearish news to justify what, after all, is quite an expensive proposition in being short US dollar.
For example, one week interest rates for G10 currencies see the US dollar paying the highest at 4.14% per annum.
Instead, the US news has not been that bad. Yesterday saw the sales rate for US spike back to levels last seen in early 2022. And year-end pricing for the Fed Funds rate is now 5bp above its low in mid-September.
For today, the focus will probably be on the weekly data and the August data. On the former, another low (US dollar bullish) number is expected near 230k as this data continues to correct lower from 264k a fortnight ago. That spike was attributed to fraudulent claims in Texas.
Regarding the home sales data, yesterday’s spike in new homes could have been a function of dealer incentives – something not available to existing home sales. Consensus is for a softer existing figure today of 3.95 million annualized rate. Any upside surprise here could lift the US dollar, too.
We’ve also got eight Fed speakers today – starting with Stephen Miran at 14:15 CET. Presumably, he’ll be keeping pressure on Chair Powell and the FOMC to take the policy rate lower more quickly. His views are well understood, however, and by themselves may not be enough to generate much of a move lower in the US dollar today.
looks stuck near 98 for the time being. Some softer US data is required to feed the US dollar bears again – and it is not clear that this is on the menu today.
EUR: Optimism Wanes a Little
sold off yesterday morning, and that looked to be a function of the German Ifo release. Here, some doubts seem to be emerging as to how quickly fiscal stimulus can be employed and whether it is indeed just creative accounting. Our macro team is looking for a pick-up in eurozone activity in 2026, but clearly some patience is required.
And if EUR/USD is to move higher later this year as we forecast, this will largely have to be on the back of a further rise in and Fed rate cuts.
In the absence of eurozone data or ECB speakers today, EUR/USD will be dragged around by US events today. A move under 1.1725 in EUR/USD could damage the short-term picture and see the correction extend towards the 1.1660 area.
CHF: SNB Could Look at Excess Reserves
The SNB meets to set policy today, at a time when Switzerland faces a 39% tariff on exports to the US, when is running at just 0.2% year-on-year, and when its preferred, inflation-adjusted measure of the Swiss franc is close to the extreme highs of early 2024, which prompted a dovish shift in tone. Yet only one of 25 economists surveyed by Bloomberg expects the SNB to cut the policy rate from 0.00% into negative territory.
While the SNB has said that all options are open on monetary policy, such as taking rates negative again or more concerted FX intervention to sell the Swiss franc, we believe its hands are quite tied.
What we would look out for today would be two things: 1) any change in rhetoric to express more concern over the franc, such as wording that the franc is ’highly valued’ or that the SNB is prepared to intervene ’more strongly’. 2) Any tweaks to the rate the SNB charges on excess reserves.
Currently, the SNB operates a system whereby a negative charge of 25bp, i.e., 25bp lower than the 0.00% policy rate, is applied on excess reserves. Excess reserves are defined as anything the banks hold over 18 times their minimum reserves. If the SNB wanted to do something about Swiss franc strength, it could either cut that 18x factor on minimum reserves – exposing more bank reserves to that 25bp charge.
Or it could extend that 25bp charge to 50bp. Either of those moves on excess reserves could see the SNB accused of ’stealth’ easing, which could briefly hit the franc.
Barring a surprise cut in the policy rate, however, we doubt any bounce in lasts long. And we see EUR/CHF continuing to trade near 0.92/93 over the coming months. Next year, however, more bullish upward momentum in eurozone growth and eurozone yields should carry EUR/CHF higher.
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