The euro gave back most of yesterday’s gains during an otherwise quiet Asia session. EURUSD traded 1.2729-1.2793 and USDJPY 76.80-76.94. The recent barrage of Fed commentary continues. On Tuesday, officials sounded cautious on their overall views on the US economy, though there seemed to be diverging opinions on just how to proceed in the immediate future. Cleveland Fed President Pianalto said that inflation was going to dip below 2% in H1 2012 and stay there, but the US still ‘needed to get its fiscal house in order’. San Francisco Fed President Williams however warned that there was a case for further bond buys if inflation ebbs, and held a somewhat more aggressive view on the US’ long-run jobless rate, which he said needed to be between 5% and 5.5%. Given the considerable distance between the current numbers and this figure, it can be assumed that the Fed’s growth mandate is still far from being attained, which would warrant a continuation of low rates into the distant future. Whether this should also translate into further accommodation remains to be seen. Chicago Fed President Evans has already made up his mind on the issue though – he has consistently been the most dovish FOMC member, and dissented in favour of additional easing at the Dec. 13 FOMC meeting. We expect to hear further calls for action when he speaks later today in his new capacity as a voting FOMC member. Given that his views are well known and the focus remains on events in Europe, we very much doubt his views will hurt the dollar. German GDP is also due.
Click here to read the full report: UBS Morning Adviser Europe