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Yahoo
4 days ago
- Business
- Yahoo
Analysis-Why Switzerland's strong franc could lead it back to negative interest rates
By Amanda Cooper and Naomi Rovnick LONDON (Reuters) -Switzerland could be the first big economy to return to negative interest rates to fight a surging currency and falling prices, highlighting how quickly central bankers may be running out of conventional policy tools as a global trade war rages on. Data this week showing Swiss consumer prices fell in May prompted traders to prepare for the Swiss National Bank to cut its 0.25% benchmark rate to below zero, as it struggles to cool the red-hot franc. In 2022, Europe's central banks left behind a decade of below-zero rates that hurt banks and savers alike. Introduced to stimulate lending, negative rates turned money orthodoxy on its head by charging banks to park deposits with their central bank rather than paying them interest for doing so. Many policymakers have since concluded they didn't work as well as hoped, weighing on bank profits at a time when they needed to invest and pushing investors into riskier assets. As Switzerland tries to stimulate its economy it is under scrutiny by the U.S. administration for how it deals with its currency, traditionally seen as a safe-haven in unstable times. U.S. President Donald Trump's trade war has raised the risk of inflationary pressures and slower growth - a nightmare combination for central bankers, politicians, businesses and households. Complicating matters for non-U.S. policymakers is an across-the-board appreciation in tariff-sensitive currencies, from the euro and pound to the Korean won and Taiwan dollar, which hurts their respective exports and economies. The Swiss franc has gained nearly 11% against the dollar in 2025, marking its best performance at this point in the year since 2011. The problem the SNB and its peers face is that traditional policy tools, such as talking their currencies down or tinkering with short-term lending rates, are ineffectual in this environment. "Drivers of inflation which lie out of the control of any central bank always cause them to get into a bad equilibrium or a policy error," James Athey, fixed income manager at Marlborough, said. The SNB "are bullied by the FX market into going to negative rates," he said. The SNB declined to comment on that notion, but separately on Friday said it would intervene in currency markets where necessary to keep inflation on track after Switzerland was added to a U.S. list of countries monitored for unfair currency and trade practices. While other central banks are also dealing with the fallout of a weaker dollar, Switzerland has the lowest rates among big developed economies, followed by Japan, at 0.5%. Japan too is fighting to anchor inflation and the yen has gained 9% year-to-date. DON'T BE NEGATIVE Japan and euro zone governments plan huge spending packages that could stimulate growth and keep negative rates off the menu. The European Central Bank on Thursday cut rates to 2% and traders expect just one more quarter-point cut this year. The Bank of Japan is still in tightening mode, even as it too has been stymied by uncertainty over tariffs. "There are fairly good reasons to think that negative rates are not impossible over the next few years ... but I just don't think at the moment, unless there's a big shift in the economic narrative, that we're going to get even close to a point of negative interest rates anywhere apart from the SNB," George Moran, European economist at RBC, said. Trump has berated Federal Reserve Chair Jerome Powell for being too slow to loosen U.S. monetary policy, while other central banks cut rates. Exchange rates are another bugbear: he has repeatedly called out China for keeping the yuan artificially low to keep exports cheap. Other countries that use currency intervention as a tool, such as Japan and Switzerland, also risk drawing Trump's ire, exactly when they are racing to seal trade deals with him. The U.S. Treasury Department on Thursday in its semi-annual currency report did not label Switzerland a currency manipulator, but it did add it to its "monitoring list" that includes China, Japan and Taiwan, among others. The SNB on Friday said it did not engage in manipulation of the franc. "It's going to be difficult for them (Switzerland) to be overly aggressive on the currency, but they have been in the past," Toby Gibb, head of investment solutions at UK fund manager Artemis, said. "While the obvious thing these countries will want to do is devalue, that's going to put them in the firing line," he said. Marlborough's Athey said the rapid shifts taking place in the global economy is raising the risk of mis-steps. "All that has to increase the chances that we don't know, that we're wrong. That's all of us. Investors, central banks, everyone," he said. "We're more likely to be wrong about where we are, where we're headed and what the outcomes for economies, inflation and currencies will be." (Additional reporting by Karin Strohecker in London, John Revill in Zurich and Vidya Ranganathan in Singapore; Editing by Dhara Ranasinghe, Elisa Martinuzzi and Elaine Hardcastle) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 days ago
- Business
- Yahoo
Analysis-Why Switzerland's strong franc could lead it back to negative interest rates
By Amanda Cooper and Naomi Rovnick LONDON (Reuters) -Switzerland could be the first big economy to return to negative interest rates to fight a surging currency and falling prices, highlighting how quickly central bankers may be running out of conventional policy tools as a global trade war rages on. Data this week showing Swiss consumer prices fell in May prompted traders to prepare for the Swiss National Bank to cut its 0.25% benchmark rate to below zero, as it struggles to cool the red-hot franc. In 2022, Europe's central banks left behind a decade of below-zero rates that hurt banks and savers alike. Introduced to stimulate lending, negative rates turned money orthodoxy on its head by charging banks to park deposits with their central bank rather than paying them interest for doing so. Many policymakers have since concluded they didn't work as well as hoped, weighing on bank profits at a time when they needed to invest and pushing investors into riskier assets. As Switzerland tries to stimulate its economy it is under scrutiny by the U.S. administration for how it deals with its currency, traditionally seen as a safe-haven in unstable times. U.S. President Donald Trump's trade war has raised the risk of inflationary pressures and slower growth - a nightmare combination for central bankers, politicians, businesses and households. Complicating matters for non-U.S. policymakers is an across-the-board appreciation in tariff-sensitive currencies, from the euro and pound to the Korean won and Taiwan dollar, which hurts their respective exports and economies. The Swiss franc has gained nearly 11% against the dollar in 2025, marking its best performance at this point in the year since 2011. The problem the SNB and its peers face is that traditional policy tools, such as talking their currencies down or tinkering with short-term lending rates, are ineffectual in this environment. "Drivers of inflation which lie out of the control of any central bank always cause them to get into a bad equilibrium or a policy error," James Athey, fixed income manager at Marlborough, said. The SNB "are bullied by the FX market into going to negative rates," he said. The SNB declined to comment on that notion, but separately on Friday said it would intervene in currency markets where necessary to keep inflation on track after Switzerland was added to a U.S. list of countries monitored for unfair currency and trade practices. While other central banks are also dealing with the fallout of a weaker dollar, Switzerland has the lowest rates among big developed economies, followed by Japan, at 0.5%. Japan too is fighting to anchor inflation and the yen has gained 9% year-to-date.
Yahoo
5 days ago
- Business
- Yahoo
Big central banks' forecasting lens gets fogged by US tariffs
By Naomi Rovnick LONDON (Reuters) -Unpredictable White House tariff rhetoric and its impact on currency markets, oil prices and the inflation outlook have put central banks across the world in a tight spot. The European Central Bank cut interest rates on Thursday and looks set to pause, Switzerland appears to be moving back towards negative rates, Japan's resolve to drop ultra-easy monetary policy is wobbling, and baffling U.S. data could keep the Federal Reserve in wait-and-see mode. Here's a look at where 10 developed-market central banks stand. 1/ SWITZERLAND The Swiss National Bank next meets on June 19, and traders see a one in three chance that it will pull rates back into negative territory from 0.25% currently after consumer prices fell for the first time in four years. The safe-haven Swiss franc has gained 10% against the dollar so far this year on geopolitical and market volatility. That's challenging Switzerland's export-heavy economy and cheapened imports, giving the SNB reasons to be wary about deflation. 2/ CANADA The Bank of Canada held rates at 2.75% on Wednesday and said another cut might be necessary if the economy weakened in the face of tariffs. The BoC has held rates for a second time in a row after an aggressive cutting cycle which shrunk rates by 225 basis points over nine months. Markets price in a roughly 85% chance of another quarter-point cut by September. 3/ NEW ZEALAND Money markets expect the Reserve Bank of New Zealand to hold steady on July 9 after a 25 bps rate cut to 3.25% in May to protect the China-focused economy. The RBNZ also warned that global trade uncertainties made future moves unclear. 4/ SWEDEN Sweden's central bank left its key rate unchanged at 2.25% in May but with on-again-off-again U.S. tariffs now having contributed to an economic contraction in the first quarter, the Riksbank has signaled more easing ahead. Its next rate decision is on June 18. 5/ EURO ZONE The ECB cut rates as expected on Thursday and kept all options on the table for its next meetings even as the case grows for a summer pause in its year-long easing cycle. It has lowered rates eight times in the last year, and markets price in one more rate cut by year-end. 6/ UNITED STATES The Fed, under consistent fire from President Donald Trump for resisting rate cuts, is expected to hold steady at its next June 18 meeting as tariff uncertainty makes wait-and-see its best option for now. With businesses spooked by Trump's aggressive trade talk, layoffs have increased, manufacturing orders have slumped and factory gate prices have surged, indicating stagflation risks that could moderate if the White House softens its stance. The Fed has held rates in the 4.25%-4.5% range since December, following 100 bps of cuts last year. Money markets price roughly 50 bps of further easing by year-end. 7/ BRITAIN The Bank of England, which has lowered borrowing costs slowly to accommodate bumpy inflation trends, cut rates by 25 bps to 4.25% last month and revealed an unexpected three-way split among its policymakers that signaled uncertainty ahead. Governor Andrew Bailey says the BoE was staying cautious amid unpredictable global trends. Traders expect no move in June and a 60% chance of a cut by August. 8/ AUSTRALIA Weak growth data and fears of Aussie commodities producers and miners taking big blows from a U.S.-China trade war means the Reserve Bank of Australia stands ready to ride to the rescue with rapid rate cuts. The RBA cut rates by 25 bps to 3.85% in May and traders see borrowing costs dropping to about 3% by year-end. 9/ NORWAY Norway's central bank has ditched plans to ease monetary policy as its oil-linked currency weakens amid global trade uncertainty, posing a fresh inflationary threat. The Norges Bank kept rates on hold at a 17-year high of 4.50% in May, and markets anticipate no change at the June 19 meeting. 10/ JAPAN The Bank of Japan, long expected to pursue rate hikes, faces a challenging mix of economic trends if tariffs hurt exports but inflation keeps rising. After the BoJ held borrowing costs steady at 0.5% in May, Governor Kazuo Ueda steadfastly refused to comment on the possible timing of the next increase. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Mint
23-05-2025
- Business
- Mint
Dollar under pressure and all eyes on Treasuries as U.S. fiscal anxiety rises
By Naomi Rovnick, Stella Qiu LONDON/SYDNEY (Reuters) -The dollar headed for its first weekly fall in five weeks against major currencies on Friday and long-dated Treasury yields stayed elevated, as U.S. debt concerns that have mounted for years started driving moves in currencies and global debt. Investor attention has switched from tariff anxiety to U.S. fiscal concerns in a week where Moody's downgraded the U.S. credit rating and the Republican-controlled House of Representatives on Thursday passed a sweeping tax and spending bill. Futures contracts tracking Wall Street's benchmark S&P 500 share index were steady in European morning trade as investors balanced the tax-cut boost to corporate earnings with longer-term concerns about the U.S. economy. "It's good for corporates initially, and clearly you're seeing the flip side of that in Treasury markets," Netwealth CIO Iain Barnes said. But with long-dated debt yields' tendency to impact valuations of other assets, from global currencies to stocks, he said investors were nervous that any further volatility in 30-year Treasuries could start rippling across global markets. "Multi-asset investors' primary concern is thinking about how these different asset classes respond to each other," he said, adding that he was keeping his own portfolios broadly diversified and neutral on market risk for now, in line with much of the investment industry. With the U.S debt pile already at $36 trillion, President Donald Trump's plans to slash taxes, cut federal budgets and boost military and border enforcement spending has sparked rollercoaster moves in the long-term debt yields that set the nation's borrowing costs. The 30-year Treasury yield was 4 basis points lower but held just above 5% after hitting a 19-month high in the previous session. "There is certainly nothing in this market move or the passage of this version of the bill that tells me there is going to be meaningful reduction in U.S. bond issuance or this broader concern about global bond supply," said Ken Crompton, senior interest rate strategist at the National Australia Bank. Yields on 30-year Japanese bonds, which hit record highs earlier in the week as selling driven by domestic fiscal and inflation concerns was exacerbated by moves in U.S. debt, recovered slightly, declining by 5 bps to around 3.10%. Data on Friday showed Japan's core consumer price inflation climbed 3.5% in April in its steepest annual increase for more than two years, raising pressure on the Bank of Japan to keep hiking interest rates. In the euro area, German Bund yields dipped on but stayed on track for their fifth straight weekly rise, tracking U.S. Treasuries. The benchmark European debt has sold off despite money markets showing that traders anticipate the European Central Bank cutting its main deposit rate to about 1.75% by year-end. In currency markets, the euro firmed 0.5% to $1.1335. An index tracking the U.S. currency against a basket of peers including the euro and Japan's yen, was 0.2% lower and down 1.3% on the week in its first weekly drop since late April. Despite the euro's gain, which tends to knock exporters' shares, Europe's Stoxx 600 share index gained 0.3% in early dealings and Germany's Xetra Dax added 0.4%, as traders stayed cautious towards U.S. assets. Japan's Nikkei also gained 0.5% on Friday, with MSCI's broadest index of Asia-Pacific shares outside Japan rising by the same amount. Bitcoin prices dipped from its record high but it was still set for a weekly gain of 6.4% to $110,796. Oil prices dropped for a fourth consecutive session and were set for their first weekly decline in three weeks, weighed down by renewed supply pressure from another possible OPEC output hike in July. Brent futures fell 0.85% to $63.89 a barrel and U.S. West Texas Intermediate crude futures fell 0.9% to $60.65. In precious metals, gold prices rose just over 1% to $3,321 an ounce. To read Reuters Markets and Finance news, click on For the state of play of Asian stock markets please click on: (Reporting by Naomi Rovnick and Stella Qiu; Editing by Dhara Ranasinghe and x)
Yahoo
08-05-2025
- Business
- Yahoo
Analysis-Scarred UK assets soothed by US trade pact, BoE rate cuts
By Naomi Rovnick LONDON (Reuters) -Investors are betting on long-depressed UK markets as a U.S. trade deal, rate cuts and hopes for renewed links with Europe spur optimism for a revival as they search for alternatives to a volatile Wall Street and flailing dollar. Britain's FTSE 100 share index completed its longest daily winning streak of all time this month and is now moving in line with international peers for the first time since 2021, while sterling sits near 38-month highs against the dollar. Money managers expect at least more stability for UK assets scarred by Brexit, ex-Prime Minister Liz Truss' 2022 mini-Budget scare and January's bout of capital flight as soaring bond yields threatened shaky government finances. A UK-EU summit, bets for Thursday's Bank of England rate cut to be followed by more easing this year and a wider move into Europe and Asia by investors spooked by potential tariff hits to U.S. growth are also sweeping gloom out of British markets. "These are all marginal benefits that together add up into something bigger," said Invesco global head of asset allocation research Paul Jackson, who sees UK stocks outperforming the U.S. this year. The FTSE is up just over 4% this year, while the broad S&P 500 index is down almost 4%. Jill Hirzel, senior investment specialist at London-based Insight Investment, said the 626 billion pounds ($834.27 billion) asset manager expected 30-year gilt yields, which underpin UK government borrowing rates, to likely drop from current levels around 5.2%. When bond yield falls, their price rises. TRADE HOPES U.S. President Donald Trump, who unleashed market turmoil with universal levies on April 2 before pausing most of those, on Thursday unveiled a trade agreement with the UK. Britain's car industry will see U.S. tariffs immediately slashed to 10% from 27.5%, while levies on steel and aluminum will reduce to zero. In late London trade, the domestically-focused FTSE 250 index was up 0.6%. The UK was already viewed as unlikely to be targeted by punitive import taxes, Fidelity International portfolio manager Shamil Gohil said, but a clear trade deal would lift market and economic sentiment from here. "It reduces uncertainty, with clarity on tariffs helping to give confidence to businesses and consumers to start spending and investing," Gohil added. "We could even see a GDP bump because of it." British Prime Minister Keir Starmer also wants annual UK-EU summits to follow talks in London on May 19, which will focus on defence partnerships but could set the scene for renewed cooperation in areas like youth mobility and labour. STABILITY? UK assets have been on a rollercoaster ride for years, with the latest selling spree in January pushing sterling to 14-month lows and 10-year gilt yields to 17-year highs as fiscal and market stability fears fed on each other. A brief market rally alongside the labour government's landslide election win last year faded fast as investors stayed cautious on British assets layered with extra risk after the 2022 rout and 2016 Brexit vote. Heightened U.S. trade uncertainty, however, which has sparked anxiety about growth slowing and inflation rising and shaken faith in U.S. assets, means Britain appears relatively steady. "I think the political volatility (in the UK) continues, but hopefully from an international perspective investors become less concerned about the fiscal issues than they have been in the last decade," Aberdeen Investments fixed income fund manager Mark Munro said. "Some of that concern might move elsewhere (with investors) starting to look again at U.S. budget deficits and the volatility of Treasuries." Big investors have warned that protectionist and volatile U.S. trade policies may erode the safe haven status of U.S. Treasuries, with higher yields raising the cost of financing $37 trillion worth of national debt. In the UK, weak growth and high borrowing are still driving finance minister Rachel Reeves towards hiking taxes or breaching budget targets, the National Institute of Economic and Social Research think tank said, but investors see rate cuts helping. "The UK has been viewed poorly and discounted for quite a long time now and I think overall it is a lot more stable now than what we've had," said Janus Henderson global equity income manager Andrew Jones, who said he has had overweight stance on UK stocks for some time. And although Bank of England rate setters were split on Thursday's rate decision, lower oil prices and a stronger pound would help contain price pressure and clear the way for further rate cuts ahead, analysts said. Premier Miton CIO Neil Birrell added that while he was not currently raising exposure to the UK, he was receiving an unusually high volume of queries about this long unpopular market from clients. Fidelity's Gohil said overseas pension fund clients had started expressing interest in buying into Britain to diversify away from the U.S. He was also raising holdings of debt issued by UK banks and utilities groups. "The UK's definitely more immune to the direct impact of trade wars. So actually, as a place to hide, it's not the worst." ($1 = 0.7504 pounds) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
