The Swiss National Bank shocked the markets with removing the 3 year+ old peg on EUR/CHF just one week before the ECB decision. That alone may be enough to show that they just cannot stay alone on the euro bid in the face of a massive downturn. Actions speak strong and are already felt in the markets.
In addition, the Swiss National Bank gave us three little additional verbal hints that next week’s decision by the ECB is going to be really really big. Here they are:
- Statement: As we have already mentioned, the statement includes the following line: “Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar”. In other words, the euro is about to extend its falls.
- No comment on consultations: After the shocking move, governor Thomas Jordan stepped up to the press, explained the decision and answered some questions. When asked by a reporter, Jordan declined to comment on communication with other central banks. The distance between Frankfurt and Zurich is quite short and communications are quite easy. It is hard to believe that they were not talking with each other. It cannot be ruled out that the SNB acted after they understood the magnitude of the ECB’s upcoming action. The refusal to comment instead of a clear denial implies a communication took place.
- A direct comment on ECB QE: Another reporter took a bolder step and asked Jordan about the ECB’s QE. Jordan’s response was interesting: he sees most of ECB QE priced into the market. Only “most”? We had reports about a €500 billion euros QE program prepared by ECB staff. This number is also talked about by quite a few economists. It is logical to assume that this figure is priced in. But this is only “most” according to the man from Zurich that just shocked financial markets. So, is it going to be even bigger?
What do you think? What kind of QE will we get next week?
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