EUR vs CHF: representing a one-year high, one euro bought you more than 1.10 CHF this morning

With infection rates falling by 70 % within three weeks of the start of the national vaccination campaign, Prime Minister Boris Johnson has announced a roadmap to gradually bring the UK out of lockdown, with hopes of a return to normality by the end of June. Schools and retirement homes will reopen from 8 March, with museums, non-essential stores and outdoor hospitality following on 12 April. In May (should the situation permit),  cinemas and hotels will again open to the public and limited numbers of football supporters will be allowed back into stadiums. One out of three adults, namely 17.5 million individuals, have now received their first dose of a vaccine. On the forex markets, Sterling continues to rise against other currencies. Since the start of the year it has gained 5% on both the Euro and Dollar. It is currently closing in on $1.42 or 1.2840 CHF.

Another salient trend on the forex markets is the fall in the value of the Swiss Franc. This morning one euro bought you more than 1.10 CHF, representing a one-year high. Switzerland’s currency has performed least well of all the major currencies since the start of the year. Hopes for a rapid economic upswing are impacting safe-haven currencies like the Swiss Franc. The Yen has again risen above 105 to the Dollar, after ending last year at 103.25

Similarly, vaccine roll-outs and the prospect of a vigorous economic recovery supported by economic stimulus packages continues to underpin interest rate increases. US 10-year yields have climbed to 1.37 %, whilst German and Swiss 10-year yields are -0.32 % and -0.27 % respectively. In Australia and New Zealand, countries considered to have managed the Covid crisis well which were both recently assigned an AAA rating, the 10-year yield is in the vicinity of 1.6 %, as opposed to 1 % at the start of the year.

As for central banks, New Zealand’s has decided to keep its key interest rate at 0.25, as expected. It will continue to support the economy through the current stimulus programme and may introduce new measures, if necessary. Last week Turkey’s central bank also left its key rate unchanged at 17 % and similarly declared itself ready to take further action, if required.

Over several days’ trading now increases in interest rates have been putting pressure on stock markets. On the one hand, risk-free investments are offering better returns and are thus squeezing riskier investments; on the other hand the valuations of riskier investments are down, as a result of the discounting of future cash-flows on the basis of higher interest rates. But most importantly, investors are nervous that we are currently at the start of a sustained cycle of interest rate increases as a result of wholesale stimulus programmes, which could accelerate inflation. At his first hearing before the US Congress, Jerome Powell, the Chair of the Federal Reserve, sought to allay such fears by playing down inflationary risk. He stated that the US was a long way from the Fed’s goals. By way of a reminder, the Fed has two objectives: first, it wants inflation kept at below 2 % and second a return to almost full employment. Until these goals are achieved, the Fed will keep rates at their current levels. This appears to have reassured the markets, as there then was a slight softening of the 10-year yield, and stock market indices made up part of their earlier losses.

Commodity prices are still rising, with nickel (at $20,000 per tonne) and copper (at $9,000 per tonne) performing best. Gold has been recovering this week, moving again above $1,800 per ounce, due to a recovery in demand since the start of the year. Lastly, the price of a barrel of WTI crude again topped $61. It had fallen by 4 % last Friday with the first signs of a rapprochement between the Biden administration and the Iranian regime regarding the nuclear deal and sanctions.