In the FX markets, events in Europe has stolen the spotlight. Greek PM Papandreou stated that he needs an answer regarding potential aid strategies at the 25-26th EU leader summit. And in a not so subtle shift, Germany is now openly supporting Greece turning to the IMF, as it would be unconstitutional for any EU member nation to provide financial aid. Clearly, the rift between Greece and Germany is growing and spilling out into the public forum. As we mentioned, we highly doubted the answer would come from within the EU and without a suitable resolution, it would continue to weigh on the EUR. The newly minted SNB's Board member Jean-Pierre Danthine used his first official policy to speech to completely pull the rug from under the EURCHF. He stated that currency policy couldn't be supported indefinitely and people must get acclimated to market defined FX-rates and higher interest rates. Immediately, the market took this as an indication that the SNB was lessening its FX interventionist policy and EURCHF maliciously traded down to 1.4400 took one breath and dove to 1.4355. Danthine later backtracked, saying the SNB stood ready to intervene on excessive CHF strength and would maintain its ultra loose expansionary policy. However, the damage was already done. With growth looking to exceed original forecasts and inflation probably staying above a SNB concerning threshold, we forecast further appreciation in the CHF. The USD continues to broadly outperform with the DXY up over 1% yesterday. The greenback got a boost first from firmer CPI data and then rumors that the Fed was going to hike the discount rate around lunchtime NY time. While the rumor proved to be incorrect, it once again highlighted the fact that the set was preparing to normalize policy (gradually but still moving towards normalization) with an anticipated hike by December (our view).
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