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In an interview with FXStreet  I discussed the  meaning of the Fed minutes, the impact on stock markets, what currencies to buy on a Brexit and the mysterious  weakening of the Swiss franc.

Here goes:

Do you believe in the June rate hike chance the FOMC Minutes expressed?

I remain skeptical about a June rate hike. If the data remains positive, we could see the Fed provide thick hints about a hike in July. Then, given further OK data and no Brexit, they could indeed call a press conference in July and raise rate. I see two hurdles for June: the chance of a Brexit one week later and a lack of full conviction for a June hike. Both the statement and the minutes from the April meeting are not strong as the ones seen in October before the December hike. In addition, the last word belongs to Yellen. I believe she will close the door on a June hike in her June 6th appearance in Philadelphia.

Could a Fed rate hike give a boost to the stock markets by giving confidence on the macroeconomic outlook?

The Fed did manage to smoothly raise rates in December and their confidence reached markets. I think they could do it again, and once again, with adequate preparation. The Fed is generally dovish, so any hawkish move is perceived as very well thought and considered, thus boosting confidence.

Are Brexit chances getting undervalued? Will the GBPUSD correct lower as the EU referendum approaches?

I believe we will see many twists and turns in the pound with every opinion poll. Volatility has significantly risen in mid-May and things could wilder down the road. I am also in the camp that sees a Remain vote but the tight polls imply pressure on the pound towards the event, naturally with every tight poll. However, chances seem to me lower after the recent improvement for “Bremain”, perhaps also a result of Carney’s warnings.

And what about the EURGBP? Would you rather buy EUR or USD in case of selling GBP on a potential Brexit scenario?

The euro is also very vulnerable to a Brexit, so the dollar and also the safe haven yen would be much better choices. To quote former Greek finance minister Yanis Varoufakis, “The EU is not a golf club that will always be there”. A Brexit also in my opinion could be the beginning of the end of the EU. Even a narrow “Bremain” could fuel the discontent across the continent, with higher demand for reform and for other exits.

What are the reasons behind the recent drop of the CHF? Is it purely correlation with EUR?

I frankly don’t know (pun intended). The Swiss franc is losing ground also to the euro and not only to the USD. When EUR/CHF rises, I always suspect the SNB, which repeats its commitment to intervene when they deem necessary. However, I don’t have any evidence. Economic data coming out of the Alpine country does not justify any new depreciation. Perhaps the SNB is taking advantage of the recent focus on Brexit, oil, Chinese debt and Japan’s dissatisfaction with the stronger yen to push down its currency.

 

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