Franc May Fall if SNB Steps Up Dovish Rhetoric on Greek Election Risk

By Roger Baettig | June 14 2012 8:09 AM

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Talking Points

SNB to Keep EURCHF Floor at 1.20, May Amplify Dovish Rhetoric
Euro May Fall as ECB Rate Cut Bets Build Amid Inflation Slowdown
US Dollar Corrects Lower Overnight, Ignoring Asia Stocks Selloff
New Zealand Dollar Outperforms After Neutral RBNZ Rate Decision

The Swiss National Bank interest rate decision is in focus in European hours. Policymakers are certainly not ignorant of the tremendous pressure that could face their EURCHF floor at 1.20 in the event of an adverse Greek vote over the weekend. With that in mind, the bank faces a difficult decision: preempt a pickup in selling pressure by raising the EURCHF floor, putting prices at a higher level heading into the weekend, or wait to see what happens and react accordingly after the election passes.

On balance, the latter outcome appears probable. This would allow the SNB to retain the element of surprise, making for a more potent intervention if such action proves necessary. With that in mind, policymakers may opt to use the statement accompanying the rate decision to brandish the availability of stronger measures - such as capital controls or punitive interest rates on Franc holdings - discouraging would-be EURCHF sellers if the Greece poll yields an unfavorable result. Such a step may put downward pressure on the Swiss unit in the near term.

Elsewhere on the docket, final Eurozone CPI figures are expected to confirm that the annual inflation rate slowed to a 14-month low at 2.4 percent in May. The result may put marginal downward pressure on the Euro as easing price pressure against a backdrop of slumping growth helps build ECB rate cut expectations, but a strong reaction seems unlikely as traders wait for Greek results before committing to a firm bias on the single currency. A softer US CPI print is likewise unlikely to generate fireworks considering its limited implications for Fed QE3 bets after last week's Ben Bernanke testimony poured cold water on hopes for added stimulus. The annual pace of price growth is forecast to slow to 1.8 percent in May compared with 2.3 percent in the prior month.

The US Dollar corrected broadly lower in overnight trade, ignoring the selloff across Asian stock exchanges that could have been expected to drive demand for the go-to haven currency. The move appears corrective after the greenback added 0.3 percent against its top counterparts over the preceding 24 hours. Prices have seesawed in a choppy range over recent days as traders withhold directional commitment ahead of the weekend's Greek election. The New Zealand Dollar outperformed after the RBNZ stuck a neutral tone in its monetary policy statement, offering no clear guidance on forthcoming rate cuts despite a recent run of soft economic data.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

NZD

Reserve Bank of New Zealand Rate Decision (JUN 14)

2.50%

22:45

NZD

Food Prices (MoM) (MAY)