Euro May Overlook Soft German CPI Data, Swiss Franc Under Fire

The Euro may not find a meaningful negative catalyst in soft German inflation figures. The Swiss Franc faced heavy selling pressure in overnight trade.

Talking Points:

• Euro Unlikely to Find Potent Catalyst in Weak German Inflation Figures

• Swiss Franc Pressured, NZ Dollar and Yen in Corrective Mode Overnight

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January’s preliminary set of German CPI figures headlines the economic calendar in European trading hours. The benchmark year-on-year inflation rate is expected to slip into negative territory for the first time since September 2009, when price growth was crafting a bottom in the aftermath of the Great Recession. While the outcome will serve to support the case for aggressive monetary stimulus, its impact on the Euro may prove limited. Mario Draghi and company have just unveiled a sizable QE program and have surely moved to wait-and-see mode, at least for now. That means another soft CPI print will mean relatively little for forward-looking policy bets, offering little impetus for FX volatility.

The Swiss Franc underperformed in overnight trade, sliding as much as 0.8 percent on average against its leading counterparts. A singular, clearly-defined catalyst for the move was not readily apparent. The SNB is due to report on it’s the allocation of its FX reserves tomorrow, which may help investors gauge how officials might go about dealing with CHF495 billion in holdings accumulated as part of maintaining the now-defunct EURCHF floor. Elsewhere, a worrisome Business Times article warned of on-coming capital flight from Swiss banks that opt to pass on SNB-imposed negative rates to clients.

The New Zealand Dollar corrected higher having slumped following a dovish RBNZ monetary policy announcement. The central bank backed off hawkish rhetoric presented in December, saying it expected to keep borrowing costs on hold “for some time” and conspicuously noted that future adjustments can take rates “either up or down”, seemingly opening the door for easing. Indeed, the markets’ priced-in 12 month RBNZ outlook now stands at its most dovish in over three years, with traders leaning toward at least one 25bps reduction. The Japanese Yen retraced downward having bested all of its G10 FX counterparts in the prior session.