The UK consumer prices index only rose by 2.5% in March, down from 2.7% in February. That’s good news for households, as wages rose by 2.8% per year in the last three months. This story and more are featured in this 19 April UK Inflation Rate Overview.
19 April, Swissquote – The euro has finally made its way back to the infamous 1.20 level against the Swiss franc. EUR/CHF traded as high as 1.1995 on Thursday morning but was unable to break the 1.20 resistance to the upside as traders wonder whether the market is ready to accept a weaker Swiss franc finally.
19 April EURCHF Fundamental Analysis
The Swiss currency retains a negative momentum since early March: on a trade-weighted basis, the franc fell more than 3.75% to its lowest level since January 15, 2015. Over the same period, the Swissie lost ground against all its G10: 4% against the euro, 2.55% against the greenback and 2% against the Japanese yen. What could explain such a move, especially against the backdrop of rising geopolitical tensions?
There are several reasons for this market movement. In recent days, the announcements of US sanctions against Russia have often been cited as a cause of the broad decline of the Swiss franc. Although they can explain part of this movement, especially in the last few days, it is too recent to justify the whole move.
We can also exclude without hesitation any intervention by the SNB on the foreign exchange market. Banks’ sight deposits with the central bank have remained stable since the summer of 2017 – at around 575 billion – which indicates that the monetary institution has remained on the sidelines.
A general strengthening of the euro could reasonably explain this trend – on a trade-weighted basis; the single currency rose 1% since February 28 – however, once again, it is not enough.
Euro inflation expectations
On the economic front, inflation expectations in the euro area have remained relatively stable since the beginning of the year, as have expectations regarding the monetary tightening process of the ECB.
However, it would seem that divergences in monetary policies, as well as the acceleration of global growth, particularly in the eurozone, could very well explain this depreciation of the Swiss franc, as investors do not feel the need to seek to take shelter anymore.
Indeed, the Swiss national bank has not yet mentioned any rate hike – which would go against its objective of keeping the Swiss franc at a sustainable level for the Swiss economy – while the ECB and the Fed are already much more advanced in this process. The SNB will never tighten its monetary conditions until it is ensured that this will not negatively impact EUR/CHF.
EUR/CHF should pass the 1.20 mark anytime. This level, however, remains key resistance and won’t be easy to break. It may take time before seeing EUR/CHF taking off towards 1.30. However, conditional on the ECB maintaining the course of monetary policy tightening and the growth outlook in the eurozone and in the US not deteriorating, the euro could reasonably reach 1.30 at the end of the year.
19 April UK Inflation Rate Overview
After reaching 3.10% in November 2017, UK inflation is giving signs of further slack, a rather positive sign for UK households who benefit from an increasing purchasing power. Published at 2.50% by the office for national statistics, March consumer price index slows down at a stronger pace than expected, given at one-year low.
Essentially supported by a decline in clothing, alcoholic beverage and furniture prices, it appears that the inflation pattern is reversing amid continued negative-oriented producer price index numbers (-0.10%).
The strong pound recovery started in January 2017 following June 2016 Brexit vote is also a large contributor to that effect due to a significant decline in the cost of imported goods within the UK.
BoE monetary policy decision forecast
Since investors are expecting the Bank of England monetary policy decision to raise its key rate by 25 basis points (fully priced-in scenario) to 0.75% as part of its normalization policy meeting on May 10th, we remain subdued as to the potential of further increase in interest rate for the current year.
The scenario of a second hike in November continues to weaken as inflation rapidly approaches the 2% target set by monetary authorities, and Brexit negotiation uncertainties soften. Accordingly, we would retain the scenario of continued inflation deceleration amid increasing wage growth and increasing consumer spending for the months to come.
Approaching its ex-ante level before Brexit event, the GBP/USD pair is quoted at 2 years high, currently trading at 1.4194, slightly declining and approaching the 1.4185 range in the short-term.
This article 19 April UK Inflation Rate Overview was written by Arnaud Masset & Vincent Mivelaz, analysts at Swissquote. While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein.
This document does not constitute a recommendation to sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or any other kind of investments.