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Flawed?

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  • After over six years of global central banks trying to reduce uncertainty and risk in the global financial system, the Swiss National Bank managed to raise financial risk and uncertainty with its decision to abandon the Swiss franc floor.
  • The level of the Swiss franc today should not create significant upheaval - a 15% move in currency pairs is unlikely to change long term corporate investment strategies. However the uncertainty risk premium might deter investment.
  • The SNB faces political rather than economic risks over the impact on the value of its overseas holdings. Inflation will almost certainly go negative on lower Swiss franc denominated commodity prices. It seems unlikely the SNB has any insight into ECB policy.
  • Elsewhere the Euro area gives us CPI (seen negative, but not in a demand deficient deflation way). The US CPI will be driven down by gasoline prices on the headline, and core inflation is also subject to oil price disinflation. Lower utility output will help limit US industrial production.