After surging by over 30% against the majority of its currency counterparts last week following the Swiss National Bank’s decision to remove its peg with the Euro and cut its interest rate further into negative territory, the Franc pared gains on Monday. With markets starting to regain some equilibrium following last week’s veritable storm of movement, the GBP/CHF currency pair gained almost 0.2% over the course of European trading. The EUR/CHF pairing advanced by over 2.5% and the USD/CHF exchange rate also rallied.
The gains in the Euro were also due to bets that the European Central Bank may fail to introduce the level of stimulus economists projected in the immediate aftermath of the SNB announcement. The surprising move from the Swiss central bank left some industry experts betting that the SNB had insider knowledge of the ECB’s intentions regarding quantitative easing and that the programme would be bigger than the leaked plan of 500 billion Euros. However, given how frequently the SNB has disappointed expectations in the past, economists are now betting that opposition from Germany will prevent the ECB from introducing the level of easing needed to support the Eurozone’s flagging economic recovery. The Euro has climbed across the board as a result. According to industry expert Neil Jones, there are ‘signs of short covering prior to the ECB on Thursday. My sense is some players believe a lot, if not all, of the QE announcements are priced in.’
Similarly, another industry expert noted; ‘Even if the ECB decides to introduce quantitative easing, a lack of details could send the euro back to levels before the Swiss move last week,” Ikeda said. “The euro could surge to $1.20 if the ECB only keeps repeating itself.’
Tomorrow the Euro could experience movement as a result of the release of the ZEW economic sentiment surveys for the Eurozone and Germany. Swiss data is lacking, but the European asset may remain volatile as markets continue to calm following last week’s turmoil.