At 8:30 AM, Q2
In the video above, I take a technical look at the three major currency pairs – the EURUSD, USDJPY and GBPUSD from a technical perspective. Each are little changed with the GBPUSD down -0.19%, the EURUSD up 0.03% and the USDJPY down -0.05%. The other major currency pairs are not much different as the market consolidates after yesterday’s run higher in the greenback.
- USDCHF +0.11%
- USDCAD +0.02%
- AUDUSD +0.05%
- NZDUSD -0.03%
In the European morning session, the Swiss National Bank (SNB) left its key policy rate unchanged at 0% in its September 2025 decision, maintaining its zero interest rate stance while signaling readiness to intervene in foreign exchange markets if needed. Inflationary pressures are little changed from the prior quarter, with forecasts showing CPI at 0.2% in 2025, 0.5% in 2026, and 0.7% in 2027, keeping inflation within the range consistent with price stability. The SNB noted that while near-term inflation may be slightly higher, the medium-term outlook remains stable. However, the economic outlook has deteriorated due to higher U.S. tariffs, which are expected to weigh on exports and investment. GDP growth is projected at 1.0%–1.5% for 2025 (unchanged) and around 1.0% in 2026 (slightly lower). With forecasts steady and language unchanged, the SNB reaffirmed that its zero-rate policy will remain in place until a material shift in conditions emerges.
Later SNB’s Schlegel spoke saying:
Inflation and Outlook:
Schlegel emphasized that inflation forecasts remain within the SNB’s price stability range, with pressures unchanged from Q2. However, he cautioned that uncertainty around both inflation and the broader economic outlook remains elevated. In particular, U.S. tariffs present a major challenge, likely weighing on Swiss exports and investment, while the global backdrop—especially in the U.S.—has slowed. Vice Chairman Tschudin added that the Swiss economic outlook has deteriorated significantly due to these trade frictions, making U.S. trade policy the main current risk for Switzerland.
Policy Stance and Tools:
On rates, Schlegel reiterated that while the bar for moving into negative territory is higher than for a normal rate cut, the SNB remains fully prepared to cut below zero if needed. He stressed that the bank will act decisively if inflation drifts outside the medium-term price stability band. Negative inflation prints in the short term are less concerning; what matters more is the medium-term trend. He also underscored that the SNB gives no forward guidance, instead assessing conditions and making decisions quarter by quarter.
Foreign Exchange and Market Interventions:
Schlegel confirmed that the SNB remains ready to intervene in currency markets when deemed appropriate. He clarified that the central bank is not considering reintroducing a minimum exchange rate, noting that today’s circumstances differ from 2011. Nonetheless, the SNB is not limited in its FX toolkit and will act if conditions warrant.
Tariffs and Economic Impact:
While tariffs are a significant challenge, Schlegel pointed out that their impact is not uniform across sectors. A large part of the Swiss economy remains unaffected, which limits the overall damage, though certain industries face higher hurdles due to very high tariff exposure.
Fed’s Miran is speaking in the early US session and says he struck a more dovish tone in his remarks, highlighting several concerns and policy views. He noted there is no material evidence of tariff-driven inflation, yet it seems to be holding back some Fed members from easing. In his view, the economy is now more vulnerable to downside shocks because policy is too restrictive, estimating that rates are about 200 basis points above neutral and should be pared back in 50 bp steps. He expects shelter inflation to decline over the next 6–12 months, which, along with lower neutral estimates driven by tax policy and immigration, supports the case for easing. While acknowledging risks from tariffs, housing, and other structural issues, he stressed the need for policy to exit its restrictive stance to avoid unnecessary economic damage.
On growth, Miran argued there is still a decent shot at 3% growth in late 2025 and into 2026, helped by deregulation, AI, and structural shifts that could raise the economy’s potential growth rate. He was more upbeat than some colleagues on the long-run outlook, though he cautioned against overestimating AI’s near-term impact. Overall, his comments underscore a preference for a forward-looking, flexible approach, with rate cuts delivered gradually to bring policy closer to neutral without derailing growth momentum.
Late yesterday, San Francisco Fed President Mary Daly (2027 voter) delivered cautious but balanced remarks on the policy outlook. She said it is difficult to predict whether further rate cuts will come soon or later this year, stressing that while the labor market is no longer running as hot, it remains fundamentally strong and sustainable. The recent rate cut was described as “insurance” to guard against labor market weakness, which Daly warned would be hard to reverse once it takes hold. She emphasized the Fed still has work to do on inflation, with underlying pressures—excluding tariffs—running around 2.4% to 2.5%, and argued the economy still needs some degree of monetary restraint, though less than before. Daly dismissed stagflation concerns and suggested that tariff effects appear to be one-time in nature. Looking ahead, she said she fully supported last week’s 25 bp cut given the shifting risks to the economy but stressed that rate-path projections are not promises. Instead, the Fed will need to evaluate trade-offs at each decision point, with further adjustments likely needed to balance price stability with labor market support.
Looking at other markets, the US yields are higher with a slightly flatter curve:
- 2-year yield 3.618%, +0.2 basis points
- 5 year yield 3.733%, +2.2 basis points
- 10 year yield 4.164%, +1.7 basis points
- 30 year yield 4.763%, +0.6 basis points
The premarket for the US stocks are to the downside for the 3rd day in a row:
- Dow industrial average -70 points
- S&P index -27.50 points
- NASDAQ index -138 points
At 8:30 AM, there is a lot of economic data scheduled for release including:
- US durable goods for August are expected to fall by -0.5% versus -2.8% last month. Nondefense capital goods ex aircraft are expected to fall by -0.1% versus 1.1% last month
- Final GDP revision for Q2. Estimate 3.3%. Core PCE prices are expected to rise by 2.5% with the headline at 2.0%
- Initial jobless claims are expected at 235K versus 231K last week.
- US Advance goods trade balance is expected to show a deficit $-95.20 billion
- Wholesale inventories for August are expected to rise by 0.2% after rising 0.1% last month.
