Forex Analysis: SNB Likely to Remain on Hold, EU Summit Begins

The Swiss National Bank is likely to keep its monetary policy setting unchanged while EU leaders begin critical a two-day summit in Brussels.

Talking Points

SNB Likely to Keep Rates, EURCHF Floor Unchanged at Policy Meeting
EU Leaders Summit Begins, Joint Deposit Insurance Scheme Now in Focus
Japanese Yen Sold as Asian Stocks Rally after US Fed Expands Stimulus

A monetary policy announcement from the Swiss National Bank (SNB) headlines the economic calendar in European hours. Thomas Jordan and company are expected to keep the target interest rate unchanged in a 0.0-0.25 percent range and maintain the EURCHF floor at 1.20, adding a familiar admonition to enforce the barrier with the “utmost determination”.

Economic performance noticeably improved in the third quarter while the pace deflation registered effectively in line with the SNB’s -0.5 percent projection over the same period. Eurozone debt crisis fears – a key source of downward pressure on the exchange rate – have also moderated since the last SNB meeting, with Italian and Spanish 10-year bond yields materially lower. That suggests the central may see little urgency in acting now.

In the meantime, EU Leaders are due to begin a two-day summit. Policymakers will tackle a host of other thorny issues dealing with deepening the monetary union on the basis of President Herman Van Rompuy’s “building blocks” proposal. This month’s sit-down has long been billed as the time for final agreements to emerge after months of haggling, so traders will look for game-changing headlines to come across the wires. An agreement on handing over bank regulation to the ECB has already emerged, with the creation of a region-wide deposit insurance scheme as the remaining key near-term deliverable.

The Japanese Yen slumped in overnight trade, sliding as much as 0.5 percent against its leading counterparts as regional stock exchanges pushed higher and dented haven demand. The MSCI Asia Pacific added 0.3 percent after the Federal Reserve expanded stimulus efforts, lifting hopes for a recovery in US demand for exports.

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