Friday March 18, 2005 - 11:10:10 GMT
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INVESTICA Ltd - www.investica.co.uk
SNB downbeat on growth
The dollar weakened to lows close to 1.15 against the Swiss currency, but managed to resist a decline through this level and the US currency rallied strongly to 1.1620 in early Europe on Friday. The franc strengthened to 1.5450 against the Euro before a retreat back to 1.5485.
As expected, the National Bank left interest rates unchanged at the quarterly policy meeting. The statement accompanying the decision was however, more dovish that expected as the bank warned that economy had lost more momentum than expected. The central bank cut the Swiss 2005 GDP forecast slightly to 1.0% from a previous 1.0-1.5% range and also lowered the inflation forecast slightly. This suggests that the bank is not expecting to increase rates in June which is likely to undermine the Swiss currency. Markets will look for any clarification today from SNB Chairman Roth over his assessment of the economy.
The central bank also warned that it would take action if the franc rose unexpectedly which will curb aggressive franc buying. The Swiss currency will still gain if there is an increase in risk aversion, although the most likely outcome is that selling pressure on high-yield currencies may have peaked for now.
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