Strong Inflation Data Boosts Swiss Franc, ECB Officials Signal Further Rate Hikes

The Swiss Franc pushed higher against major currencies after the release of stronger-than-expected inflation data, raising the possibility of a 50bps interest rate hike by the Swiss National Bank (SNB) during their upcoming meeting. Meanwhile, the Euro also gained ground, thanks to hawkish comments from ECB officials.

However, the Australian Dollar struggled as China’s lower-than-expected growth target for the year weighed down the currency. Despite expectations of a 25bps interest rate hike by the Reserve Bank of Australia (RBA), the cautious outlook on China’s economy has pressured the Aussie.

ECB Signals Further Rate Hikes

ECB Chief Economist Philip Lane has indicated that it is “appropriate” to raise interest rates beyond the March meeting. However, the same rate increase will depend on upcoming macroeconomic projections and incoming data on inflation and monetary transmission mechanisms.

ECB Governing Council Member Robert Holzmann has gone further, calling for four 50bps rate hikes in the March, May, June, and July meetings, arguing that only a 4% deposit rate would start restricting growth and bringing inflation back to 2% in the foreseeable future.

Eurozone Sentix on a Downward Trend

Eurozone Sentix has dropped to -11.3, suggesting that stagnation could become a renewed risk. The sentiment is turning pessimistic, moreover, with the European economy facing headwinds from Brexit uncertainties, trade tensions, and global economic slowdown.

Related Facts

• The Chinese National People’s Congress has lowered the growth target to 5%, the lowest in decades.
• RBA is expected to announce a 25bps rate hike during their upcoming meeting.
• USD/CHF has broken 0.9340 support, indicating a short-term topping at 0.9439.
• EUR/USD may experience a deeper selloff if it breaks the 1.0690 resistance.

Key Takeaway

The ECB is signaling further rate hikes as the European economy faces headwinds from the global economic slowdown and uncertainties surrounding Brexit and trade tensions. Meanwhile, China’s lower growth target has put pressure on the Australian Dollar, while Switzerland’s strong inflation data has boosted the Swiss Franc.

Conclusion

While the ECB’s hawkish stance may support the Euro, the underlying economic risks are still a cause for concern. As the global economic environment remains challenging, investors should remain cautious and monitor the developments closely.