A 1.08 floor?
As we wrote yesterday, a surprise interest rate cut in Switzerland from the Swiss National Bank (SNB) has jolted markets into life. Over the last month, the probability of interest rate cuts at major central banks has been falling consistently. This surprise cut from the SNB last week has awoken investors to the possibility that the start of the monetary loosening cycle may be closer than they were beginning to think. Accordingly, futures markets now show a non-negligible probability for an interest rate cut at the next Bank of England’s next decision, to name but one significant change. Until the SNB’s decision last week, this was all but written off as impossible.
However, the central bank most exposed to speculation on the back of the SNB’s decision to cut is the ECB. This is because the economic and financial dynamics amongst the two economies are normally seen to be heavily intertwined. A cut at the SNB therefore leads to speculation that the ECB could be the next to cut. Looking at major Euro crosses, and EURUSD in particular, we could be forgiven for concluding that there has been an element of Euro weakness of late. However, look at a trade-weighted Euro index for the past month and we would reveal the image of a far rosier Euro, up 1.5% in the last month.
The Euro’s short-term fortune will ultimately depend upon the ECB, and how this central bank positions itself for the tightening cycle. However, with a price floor seeming to have emerged in EURUSD at 1.08, there is a case within which the Euro holds its ground. Positioning behind the Euro is still net long. Encouragingly, the extent to which speculative positioning favours the Euro’s appreciation has fallen in size, limiting the risk that a significant liquidation of long positioning could move EUR spot prices materially lower.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – US Trade War Tariffs
Humphrey Percy
Wed 2 Apr 2025
US Trade War Tariffs With all markets awaiting what emanates from POTUS later today, Trump has certainly achieved one aim: getting the world’s collective attention. Increasingly desperate TV pundits have spent the past hours dragging past Trade Negotiators into the studio in an effort to get them to predict what the tariffs will look like. […]
Daily Brief – De-Dollarization
Humphrey Percy
Mon 31 Mar 2025
De-Dollarization A shift away from the US Dollar with Central Bank Reserves denominated in US Dollars moving down from a high of just over 70% down to 60% in the past 20 years is note worthy but the speed of that decline makes it less striking. However there are 3 factors that are changing the […]
Daily Brief – Pairs Trading
Humphrey Percy
Fri 28 Mar 2025
Pairs Trading Back in the days when I worked in Bermuda for a hedge fund, we were always seeking stocks that were overvalued and other stocks that were undervalued having analysed both sets of historical price behaviours. Normally those stocks were in the same industry but not necessarily in the same geographic region. In the […]
