Central Bank Intensive Week Gets Under Way with Swiss Relief


  • Swiss Gold Referendum rejected by voters. Metal drops to three week low
  • Week heavy with central bank activity with RBA first up
  • Friday’s NFP the highlight as U.S. economy on track for Fed rate hike


Central banks will dominate the spotlight this week as there will be rate announcements from Australia, Canada, the United Kingdom and Europe, before Friday’s market-moving U.S. nonfarm payrolls (NFP) report is released.

Over the weekend, Swiss voters resoundingly rejected proposals in a referendum that would have changed the mandate of the Swiss National Bank (SNB) to increase its gold reserves to 20% from about 8% currently. The vote’s outcome undoubtedly brought immediate relief to Swiss policymakers who need the flexibility to manage the bank’s EUR/CHF exchange rate. Meanwhile, Chinese purchasing managers’ index numbers for November dipped below expectations. The data will increase the pressure on the People’s Bank of China to further stimulate the economy to avoid further slowdown. The effects of these events on the weekend will get the ball rolling in a week filled with major announcements and economic releases that will increase volatility across the FX market.

There are no rate changes expected as most of the policymakers have expressed a lower for longer message at different turns. The European Central Bank (ECB) is facing the most pressure after President Mario Draghi asked European Union members to grant him the ability to launch a full-on quantitative easing (QE) program. The major opponent to that stimulus alternative is Germany, arguing it is against the bank’s mandate to buy of sovereign bonds. That being said, there are still some analysts that expect the ECB to step up and launch a QE program though it is unclear how it could work without Germany’s blessing.

Gold Vote Losses Luster

The “Save our Swiss Gold” campaign only swayed about a quarter of Swiss voters. Earlier polls had hinted about the strong possibility the SNB would not have to repatriate gold holdings around the world and engage in a buying spree that would have pushed the price of the metal upward. The uncertainty was still high even with polls favoring the outcome preferred by the central bank. When the results came in on November 30, both the commodity and the franc dropped versus the dollar. EUR/CHF 1.20 is easier to defend without the added complexity of increasing gold reserves to 20%.

Gold fell as the referendum vote was one of the few events driving the price up in the last month. Lower demand for commodities as well as a lack of appetite in the metal as a safe-haven and inflation hedge has seen gold touch four-year lows. The precious metal continues to trade around $1,148 per ounce.

RBA Lower for Longer Rate Decision

Reserve Bank of Australia (RBA) Governor Glenn Stevens said in a speech two weeks ago that interest rates will be low for years to come. The current Australian benchmark rate is 2.5% and it is not expected to change this week when the RBA publishes its policy statement. A weaker AUD could benefit the economy as it copes with the effects of a Chinese manufacturing slowdown.

ECB Rate Decision: Whatever it takes but What can Draghi do?

Last week a Credit Suisse analyst said the ECB will announce a QE program during its December 4 meeting. The current market consensus is on the ECB president to fire more pleas to European Union members to follow through on policy reforms, and maybe single out Germany to ease off on its austerity focus, which is preventing the bank from purchasing sovereign bonds. Though some analysts are forecasting a surprise announcement after Japan’s and China’s unexpected moves last week, the ECB does not have the independence that the Asian central banks have. For all the escalating rhetoric from Draghi, German Chancellor Angela Merkel, and Bundesbank President Jens Weidmann have been firm in their positions that sovereign bonds are not needed or wanted to spur growth and avoid deflation across the E.U.

The economies of France and Italy continue to have budget issues and have been given a reprieve until next spring, but there are little expectations that reforms will come in time and more pressure piles on the ECB to unlock Germany’s anti-QE stance.

BoC and BoE No Surprises as Held Rates are Expected

Bank of Canada Governor Stephen Poloz pledged the central bank is ready to adjust to whatever headwinds threaten the Canadian economy, even going as far as to suggest a rate cut could be implemented. Canadian fundamentals continue to be mixed, but the most likely scenario is a rate hike next year following the lead of the U.S. Federal Reserve. The drop in commodities has taken a toll on the CAD, but a strong U.S. recovery would be beneficial for its northern neighbor.


The Bank of England (BoE) at one point in the fall was the most likely major central bank to issue a rate hike but things have turned “gloomier” for the U.K., as BoE Chief Economist Andy Haldane stated last October. Exports continue to struggle and most of the strength continues to be all internal consumption, which could turn rather quickly especially if house prices drop. That is the reason the BoE has been so diligent in trying to stabilize rising house prices with only moderate success.

Non-farm Payrolls Could Boost Fed Rate Hike Schedule

October’s NFP numbers came in slightly below expectations, but there was an improvement in the unemployment rate to 5.8% which is the lowest in four-and-a-half years. November might prove to be along the same lines on the headline number with a forecast of 225,000 new jobs. The gain might still be above 200,000, but it would be an eye-opener to beat expectations given the less optimistic Conference Board survey results on job availability. The November and December figures can still impress the market and boost the case for the Fed to start its rate-hike cycle next year. The original schedule was naively announced by Chair Janet Yellen in her first press conference to raise the benchmark rate about six months after the end of QE. The six months will place it around spring of 2015.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza