Afternoon analysis 10.08.2015

The Swiss franc dropped to the lowest level since mid-January. No direct comments on monetary policy from Fischer. Goldman Sachs comments on the zloty regarding the upcoming Polish election.

Weaker Swiss franc

The EUR/CHF rose to the highest level since January 15th. We can find several reasons behind the move. Firstly, some positive sings can be seen form the SNB actions. The negative interest rates are discouraging short term capital flow to the “safe heaven”.

Another important issues are currency interventions which were run by the SNB in July. They stopped the Swiss currency from appreciation in the culmination of Greece crisis. It might also have discouraged speculators to generate more volatility during the tense moment in the eurozone. On the other hand, the Swiss currency is getting weaker when the odds for Greek crisis resolution are higher. As a result, it makes more room for further CHF depreciation.

Out of the events from the calendar for today, it is worth noting the interview with SNB deputy chief for “Finanz und Wirtschaft”. Fritz Zurbruegg claims that the franc is still “significantly overvalued” but the recent move is in good direction. The SNB also claims that the monetary policy should not be changed in the foreseeable future.

Zurbruegg also noted what we have written for months. According to the SNB member, the strong Swiss franc is not only a result of capital inflow to the CHF, but also due to the fact that Swiss companies invest less abroad. It is a result of weak world economy perspective. However, when this situation change then both the long and short term capital flow may change the direction. It may push the Swiss franc significantly lower but not earlier than in a few quarters.

No direct comments on the monetary policy

There was nothing surprising in Bloomberg interview with Stanley Fischer. The Fed's vice chair wasn't eager to comment the current monetary policy, so it was rather a non-event for the market.

We should also not expect any ground breaking comments from Dennis Lockhart, especially that he was quite clear in the “WSJ” interview. After fairly solid NFP he should not change his quite hawkish view on the September rate hike.

Goldman Sachs on the zloty

Goldman Sachs analysts cited by Bloomberg news agency expect some more volatility in the period before the parliamentary election. However, the “GS” comments do not look really surprising. In almost all EM economies and in many developed countries elections created some uncertainty. Many examples, however, show that the most important things happen after the election. The key is when the winning party can create a stable government.

Overall, the comments from Goldman should be regarded as rather positive. The most famous investment bank claims that the zloty should be supported by “strong” growth perspective, significantly narrowing current account deficit and positive short term rate difference. The “GS” claims that the first interest rate hike is expected in second half of 2016.