[FBS_Official]

Julius Baer: SNB will follow the ECB in raising rates

Currency strategists at Swiss bank Julius Baer expect that the single currency will end the second quarter of the year slightly below 1.30 versus Swiss franc. In their view, the Swiss National Bank (SNB) will follow the European Central Bank in raising the interest rates.

The specialists believe that as the euro zone’s debt problems are gradually being resolved, the demand for franc as the safe haven will be limited. According to the bank, during the 3 months from April to June forex market will be dominated by the monetary policy normalization all over the world.

[FBS_Official]

J.P.Morgan, Citigroup: pound will rise versus euro

This week there is a lot of information from the central banks: there are all in all seven central bank meetings and nine Fed officials scheduled to speak. The Reserve Bank of Australia decided to keep the benchmark rate unchanged at 4.75%.

The climax is going to be on Thursday, when there will be rate decisions from the Bank of Japan, the Bank of England and, certainly, from the European Central Bank.

Strategists at J.P. Morgan note that the expectations of higher rates is already priced in the single currency, so euro may decline once any rate hike is announced. As for the Bank of England, no one expects it to lift up the borrowing costs, so if the UK monetary authorities sound hawkish, pound may get some support.

Analysts at Citigroup advise investors to buy pound versus the European currency. In their view, the euro area’s credit risk will increase relative to Britain’s. The specialists believe that the pair EUR/GBP will decline to 0.8400. The trade should be stopped if the euro rises above 0.9062.

[FBS_Official]

OECD: economic forecasts for the second quarter

Pier Carlo Padoan, the OECD chief economist, claimed today that the European Central Bank's anticipated 25-basis-point rate rise won't have any significant negative impact on the euro zone's economy. According to Padoan, the situation in the US is different as the Fed is not as concerned about inflation as the ECB because it still has to fight high unemployment.

The OECD lifted its annualized growth forecast for the US in the second quarter from November estimate of 2.5% to 3.4%, for France – from 1.6% to 2.8% and Canada from 2.6% to 3.8%. The OECD lowered its second-quarter growth forecast for the UK from 1.3% to 1% and Italy from 1.6% to 1.3%. It forecasts growth of 2.3% for Germany, the euro zone's largest economy.

The organizations note that the developed countries should set budget consolidation as their priority. Padoan said that Portugal's instability remains the main source of worry. The country should hurry to solve its political problems and the new government has to be formed as soon as possible.

[FBS_Official]

Geithner: US debt will reach ceiling by May 16

Treasury Secretary Timothy Geithner warned the Congress that US debt will reach the country's $14.294 trillion debt ceiling no later than May 16. Earlier the Treasury Department estimated that the limit will be hit between April 15 and May 31.

If US lawmakers don’t raise the ceiling by this May 16, the Treasury will have to employ a range of extraordinary measures to prevent the United States from defaulting on its obligations. However, Geithner said that these measures could put off the inevitable only for eight weeks or so and the US won’t be able to borrow within the limit after about July 8, 2011.

The data on March 31 showed that the debt subject to the legal borrowing limit was $14.218 trillion, or roughly $76 billion under the legal cap. Typically, that's a little over two weeks of borrowing, although debt levels can fluctuate up or down on a daily basis.

Geithner underlined that the Treasury won’t start a “fire sale” of financial assets such as gold because this will damage financial markets making investors lose confidence in the US solvency.0:00 /07:43How to cure U.S. budget 'stupidity' If Congress doesn’t increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.

According to the official estimates, American government will need to borrow $738 billion by the end of this fiscal year.

[FBS_Official]

Nomura: euro risks are still high

Analysts at Nomura Securities claim that the single currency has been trading so far as if there was no sovereign debt crisis. The market has ignored the issues in Portugal, Ireland and Greece and the risk premium on euro has been declining since January after risk premiums were driving all the EUR/USD moves in 2010.

The specialists note that in case of positive outlook for euro that wouldn’t be a problem, but since the crisis is still unresolved everything may go wrong. In their view, investors have priced in about 85 to 90 basis points of interest rate hikes this year, so if the ECB doesn’t meet the expectations that will certainly harm the single currency.

The strategists believe that the risks of debt restructuring are rather high. According to Nomura, the restructuring solely in Greece, Ireland and Portugal will cost the core euro zone around $235 billion, while a restructuring that also involves Spain would require from the ECB about $480 billion. These numbers aren't insurmountable, but getting to them would be very difficult from the political point of view.

The analysts recommended selling euro versus Norwegian krone and maybe British pound.

[FBS_Official]

BofT-Mitsubishi: yen will keep weakening

Japanese yen fell to the 6-month minimum at 85.52 versus the greenback. After G7 nations conducted joint intervention on March 18 to stop yen’s appreciation that hit the postwar record maximum at 76.25 yen per dollar, the currency lost 5.1% surviving the biggest decline among 10 developed-nation currencies.

Analysts at Bank of Tokyo-Mitsubishi UFJ expect that the Bank of Japan will fall behind the other major central banks in ending monetary stimulus measures as the nation’s economy needs support to recover from the biggest earthquake in its history. In their view, yen is likely to remain the weakest currency for a long time.

The BOJ 2-day policy meeting has begun today and it is thought that the country’s monetary authorities may decide on new fund-providing measures. According to Bloomberg that is citing unnamed sources, the central bank is considering offering a credit program to spur banks to lend to companies with cash-flow shortages.

[FBS_Official]

UBS, ING: comments on Swiss CPI growth

According to the data released today, Switzerland’s CPI added in March 0.6% from the level of the previous month, while the economists were looking forward only to 0.2% increase.

Analysts at UBS note that such unexpectedly strong growth of Swiss consumer prices was due to the technical factors. The specialists draw investors’ attention to the fact that the CPI basket was revised: clothing was given much heavier weighting and, as a result, the index has become more volatile.

Currency strategists at ING explain the surprising advance of Swiss prices by the seasonal energy and clothing price increases. In their view, these factors are temporary, so there’s still no reason for the SNB to end its expansive monetary policy. The analysts reminded that, according to the Swiss National Bank forecast, the headline inflation won’t break above the 2% threshold before middle of 2013.

[FBS_Official]

Commerzbank: USD/JPY on its way up to 94.50

US dollar recovered from the record minimum at 76.31 hit on March 16 reaching the 6-month maximums above 85.00.

Technical analysts at Commerzbank note that the pair USD/JPY is coming closer to the key resistance in the 85.62/84 area, representing the top of the 2007-2011 down trend channel and the 50% retracement of the decline from May 2010.

The specialists expect that although there will be some profit taking at those levels, US currency will manage to get higher to 87.55 and 94.50.