Macro Highlights January 20th 2015

Analysis - 1/20/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

The Swiss National Bank (SNB) tears out the floorboards

Last Thursday the Swiss National Bank (SNB) announced that it was abandoning the 1.20 floor rate that it had set for the EUR/CHF rate in September 2011. Investors no longer have to trade their euros above that line. Within a few minutes of the SNB’s historic announcement, the Swiss franc catapulted 40% in value before falling back and steadying around parity with the euro in the days that followed. That is 20% higher than before the central bank took its axe to the floor. (...)

Making the most of the situation

Decisions by other central banks will have to be monitored carefully in the coming days. Rumours are swirling. What did the SNB mean when it said that "disparities between the monetary policies pursued in the major currency blocs have grown sharply in recent times and could widen further"? The decision by the European Court of Justice to endorse the ECB’s Outright Monetary Transactions round of debt purchases clearly paves the way for a more massive programme of quantitative easing than had been expected.

This could be launched at the ECB governors’ meeting this Thursday. On the other side of the Atlantic the Federal Reserve probably won’t allow the dollar to appreciate too rapidly, since that would harm US growth and inflation. The Federal Reserve (Fed) could therefore soften its tone and even raise the possibility of postponing its first move to up interest rates, currently expected at the beginning of the second half of 2015. (...)