Date: 22 Jun 2018

Perhaps what was the most interesting aspect of Thursday’s Swiss, Norwegian and UK central bank decisions was the way some clear blue water is emerging between, on one side, the European Central Bank (ECB) and the Swiss National Bank (SNB) and, on the other, the Bank of England (BOE) and the Norges Bank. SNB Chairman Thomas Jordan made it plain on Thursday that while the SNB sets monetary policy independently, it considers international factors. In reality, at the moment, that means the SNB is watching the ECB, and, as traders are well aware, the ECB doesn’t presently foresee a rate hike until after summer 2019. Of course that doesn’t mean the Swiss franc goes nowhere versus the euro (EURCHF) just that its direction will most likely not be driven by monetary policy differences. The British pound and Norwegian krone are quite another matter (EURGBP, EURNOK). Having seen what the ECB did and said last week, the Norges Bank could have dampened expectations of a Norwegian rate hike in September. It didn’t. Its focus was on domestic Norwegian markets. A similar point could be made about the BOE’s 6-3 decision to keep rates unchanged.

The 6-3 vote was closer than the 7-2 analysts had expected. The possibility of a UK August rate hike has arguably increased. But perhaps it could also be argued that while the BOE’s focus remains domestic it initially saw Brexit as a threat to growth (and cut rates accordingly before taking that cut back later) but now sees it as inflationary (with a tight UK jobs market encouraging wage-push inflation). At the very least however Thursday’s 6-3 vote sees the BOE much closer to hiking rates than the ECB. Whether that gives the pound a sustained bounce versus the euro is for traders to decide. Traders might also have one eye on OPEC when thinking about the prospects for the NOK versus the euro. But either way the currency market will have noticed that the mood music emanating from the ECB and SNB is clearly different to that of the BOE and the Norges Bank. At some point that will likely be reflected in the foreign exchange market.

Written by Neal Kimberley, External Currency Analyst.