Forex News Update

CHF: Reported intervention against EUR & USD

Reuters & Bloomberg yesterday reported speculation that the SNB has been buying both EUR and USD, consistent with a dramatic move in the CHF crosses. The perceived involvement in USD/CHF came as a surprise to the market, as the SNB had previously stated it would specifically buy euros as part of its intervention policy. But, the weakness in the USD and JPY had meant that daily estimate of the SNB’s trade-weighted exchange had appreciated by more than the level of EUR/CHF would suggest. Indeed, the Swiss TWI was at its strongest post-intervention level ahead of yesterday’s reported intervention - if this is what the SNB was concerned about, then it would make sense for them to intervene in USD as well as EUR. Intervention in USD/CHF is likely to be viewed as ramping up the SNB’s commitment to prevent the CHF from rising inordinately. Post-intervention sell-offs in the CHF have tended to be temporary, partly related to the SNB’s stance that it is not looking to weaken the currency, only to prevent it from appreciating. As such, there could more attempts to test the SNB’s resolve in the weeks ahead, but traders continue to expect EUR/CHF to remain well-supported.

ZAR: SARB rate decision today

South African consumer price inflation moderated to 8.0% y/y in May from last month’s 8.4% print, marginally higher than the consensus estimates for 7.9% y/y. While an improvement from the April print, it is noted that much of the moderation in today’s number stems largely from base effects, with the majority of the components in the inflation basket remaining sticky - particularly in the services components of CPI which makes up around 46% of the overall basket. Despite the broad-based nature of consumer price pressures, the SARB is likely to continue to see a moderating inflationary trend, driven largely through the country’s large output gap, which is expected to keep a lid on consumer price increases in 2009. Nevertheless, significant risks to the inflation outlook remain and a more conservative approach by the SARB is likely to be adopted at today’s MPC meeting. Market looks for a 50bp cut as a result.