Swiss franc rises as SNB lowers inflation and growth forecasts

The Swiss franc rose sharply after the Swiss National Bank (SNB) released its interest rates. As expected, the bank left interest rates unchanged at minus 0.75% and lowered its economic and inflation growth forecast for the year. The bank now expects growth to be between 0.5% and 1% this year. This is lower than the previous forecast of 1.5%. It expects inflation to drop to 0.4% from the previous 0.6%. In 2020, the bank expects inflation to be at 0.2%. In addition, the bank introduced another monetary policy tool, which will be used from November. Using this tool, the bank will start adjusting the basis for calculating negative interest rate. The tool will be calculated monthly and will reflect its balance sheet over time.

The sterling declined today after the Bank of England delivered its interest rates decision. As was widely expected, the central bank left interest rates unchanged at 0.75%. For the first time this cycle, the bank said that there was ‘entrenched uncertainty’ over Brexit and ‘domestically generated inflationary pressure would be reduced’. Traders interpreted this to mean that the bank was a bit dovish and was likely to cut interest rates in the near future. The bank also reiterated that in a no-deal Brexit, rates movements will not be automatic. However, it is expected that the BOE would automatically slash rates in case of a no-deal Brexit. In addition, the bank warned about the risks of a prolonged delay in Brexit. Before the BOE decision, data from the country showed that retail sales declined unexpectedly in August.

The US dollar index declined today as traders continued to digest the Fed interest rates decision. Today, traders received relatively better economic data from the US. The initial jobless claims rose by 208k, which was better than the consensus estimate of 213k. The continuing jobless claims rose to 1,661k, which was better than the expected 1,672k. The manufacturing index from Philadelphia rose to 12. This was slightly better than the expected 11.0. 

GBP/USD

The GBP/USD pair declined to an intraday low of 1.2436 after the BOE decision. The pair then pared back some of these losses and is currently trading at 1.2470. This price is along the important support shown in blue below. The pair has also formed a symmetrical triangle pattern as shown below. The price is along the 14-day and 28-day moving averages. There is a likelihood that the pair could breakout strongly in either direction.

USD/CHF

The USD/CHF pair declined sharply to an intraday low of 0.9900. This happened after the statement by the Swiss National Bank. On the four-hour chart, the pair has been moving through a channel.  The pair is now trading at 0.9915, which is slightly above the support of this channel. This price is below the 28-day and 14-day moving averages while the RSI has moved lower to the current level of 45. The pair will likely continue moving lower to re-test the support of 0.9900. The pair could also breakout below the support and start a new downward trend.

EUR/USD

The EUR/USD recovered from the losses made yesterday after the Fed lowered interest rates. The pair is now trading at 1.1065, which is slightly lower than the intraday high of 1.1075. On the hourly chart, this price is slightly below the upper line of the Bollinger Bands. The RSI has moved from a low of 32 to the current level of 67. The ADX has been rising and is currently at 42. The dots of the Parabolic SAR indicator are below the price, which is a sign that the pair could continue the upward trend.