Thursday March 15, 2007 - 11:25:49 GMT
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INVESTICA Ltd - www.investica.co.uk
SNB tightening likely
The Swiss National Bank is likely to increase interest rates and will probably signal a further increase in June, but bank confidence over inflation will limit franc buying.
The Swiss franc moved to challenge important resistance levels close to 1.21 against the dollar on Wednesday. The US currency found support close to this level and pushed back to 1.2180 as Wall Street rallied.
There was further evidence in European trading of franc buying as investors switched from higher-yielding assets. The franc retreated in US trading as markets regained some composure and volatility will remain a key short-term threat given the lack of conviction over underlying trends.
There is a strong probability of a further 0.25% increase in interest rates to 2.25% at Thursday's National Bank quarterly meeting. Markets will watch the central bank comments on inflation closely for evidence on future policy. Given that the franc has recovered from recent lows, the bank is less likely to take a very tough policy stance and any hints that rates have peaked would tend to weaken the Swiss currency. The most likely outcome is that the bank will remain committed to policy normalisation which would suggest a further increase in June.
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