EUR/CHF Continues To Make Historic Lows On Euro Zone Tensions

from the BBH Currency Strategy Team

The euro is slightly firmer today vs. the dollar today, but continues to make new historic lows vs. Swiss franc just below 1.25, suggesting that euro zone tensions remain strong. EM currencies continue to firm, suggesting a bit of decoupling from the euro zone crisis.

However, trading ranges are fairly narrow as we head into the holiday weekend.

The ECB said will lend out EUR149.5 bln in 3-month loans, and that 270 banks bid for the money. Banks need to repay EUR96.9 bln in maturing 12-month loans on Thursday and EUR38.2 bln in 3-month loans on Friday. European banks (particularly in the periphery) remain highly dependent on the ECB for its liquidity needs, is yet another sign of the stresses running through Europe still. Exit strategy for the ECB seems a long way off.

Peripheral bond yields are mostly higher. Portugal 10-year bond is the worst performer, with yield up 7 bp on the day. With German 10-year yields down 2 bp today, the peripheral spreads continue to widen.

Asian equity markets were mixed, while European equity markets have started the day higher. US index futures are currently pointing to a flat up open.

Poland, Czech central bank meet today. No change in policy is expected.

Hungary retail sales fall y/y unexpectedly, highlighting the weak state of the economy even as the central bank continues to tighten. We remain very negative on HUF.

BOE minutes came in as expected, with the vote breakdown for the December identical to the previous two, 7-1-1. Seven voted to keep policy steady, Sentance voted to tighten, and Posen voted for expanded asset purchases. UK Q3 GDP revised slightly to 2.7% y/y from 2.8% y/y previously.

Japan November trade surplus was lower than expected, as exports came in weaker than expected and imports stronger than expected.

US data out today are Q3 GDP revision (2.8% SAAR expected vs. 2.5% previously), November existing home sales (4.75 mln annualized rate expected vs. 4.43 mln previously), and October house price index (-0.2% expected vs. -0.7% previously).