Franc in the Tank

The SNB made a small move that sends a large signal about how it feels about the franc. The CHF was easily the worst performer on the day while the pound surged to lead the way. The China flash manufacturing PMI from HSBC is due later. 

The Swiss National Bank has tried jawboning to stem the renewed rally in the Swiss franc but a steady slide in EUR/CHF to the lowest since early February – even with the euro broadly rallying -- prompted action. Officials added negative rates to a wider variety of instruments, removing most of the exceptions.

The rules won't take effect until May 1 so there was no reason for panic moves but it was a signal that the SNB is unhappy with the level of EUR/CHF and the pair climbed more than 150 pips to 1.0404. By almost any measure, the franc is overvalued but in a world of increasing QE, it remains a safe haven. 

The broader theme in US trading was a move out of safe havens. Corporate earnings so far have been decent and all the talk Wednesday was about early-year seasonal weakness once again. Bond yields climbed, gold slumped and stocks rallied.

In FX, the general theme was consolidation after an earlier rally in the pound. Yen weakness also continued (but 120.00 in USD/JPY is proving tough to break). Once again, even minor economic data proved noteworthy. Existing home sales rose 5.19m compared to 5.03m expected and that added a quick bid into USD.

The Australian dollar continued higher in Asia after higher CPI numbers but the gains began to erode in Europe and that continued in US trading. It will remain in focus with the flash HSBC China manufacturing PMI due at 0145 GMT. The consensus is for no change from the 49.6 reading in March.

The Aussie has been less sensitive to Chinese data but that could change. AUD/USD was unable to hold gains after this week's rate cut. A soft reading would stoke fears about a sharper slowdown and could weigh.