FX Daily

The Federal Reserve meeting which took place on Wednesday the unsurprising decision to leave Key interest rate at 0.25% was followed by the Fed’s statement that interest rates are expected to stay at ultra low levels for some time. As for the outlook on inflation the Fed stated that although the economy is showing a sign of bottoming inflation is likely to stay subdued for some time to come and thus justifying the ultra low interest rates levels. The Fed statement was also focused on the effort to ease credit markets by purchasing US treasuries and mortgage-related debt. The Fed outlined its commitment to the pledge it made in previous FOMC meetings to purchase 1.45 Trillion Dollars of mortgage related debt and 300 Billion of long term US Treasuries. The statement which slightly disappointed markets which expected the Fed to increase bond purchases as the Yield on the Treasuries were driven much higher since the fed issued its preliminary statement to repurchase Treasuries. Market was not too late to react with a bond selloff. Nevertheless the overall Fed statement could be summarized as quite in line with the market expectations. 

 The ECB which has been criticized lately for not addressing the credit distress in the EU properly has finally generated a substantial evident move to address the tight leash around the credit markets with an unprecedented money injection of 422 Billion Euros to the EU banks. The money market operation is an immediate loan to bank for with a maturity of up to one year in order to address the Banks short term needs. The credits market were not too late to react with interbank lending rates falling sharply Although some indicators point the EU economy is slightly improving the  ECB warnings last  that euro zone banks face another $283 billion of write downs is sill looming on the regions economy. The current funds injection is aimed to ease the pain of these write downs however only time will reveal its effectiveness. In the mean time in the FX arena the Euro was not too late to react with selloff trading below 1.4 against the dollar and around 0.84 against the sterling.

 The SNB has once against intervened with the FX trade of the Swiss franc as a signal the central bank is persistent and determined in tackling the deflationary pressures in the Swiss economy. The CHF reacted aggressively to the SNB move with a fall of more than 1% against most of the majors and, most importantly the Euro. The Swiss economy which is highly interconnected to the EU market as the EU posses it largest export market and source of Job growth has been hit by the EU continuing economic weakness. The current direct interventions in the FX rate of the CHF alongside the SNB bond repurchase programs and the willingness to keep key rates ultra low are meant to ease the pain in the Swiss economy allow the Swiss exporters to remain competitive without cutting jobs significantly which will produce more headwinds for the Swiss economy.

 Overall the trade was in rage with sentiment rather mixed and the Dollar slightly gaining grown against its peers.

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