Our economists lowered their long-term euro and sterling forecasts overnight. They now see EURUSD at 1.15 (prev. 1.25) by end-2012, and 1.10 (prev. 1.20) by end-2013. US Treasury Secretary Geithner and Japan’s Finance Minister Azumi met. Afterwards, Geithner said the US is “fully prepared” to support a more vital role for the IMF in Europe, but did not elaborate. This fits with a newspaper report yesterday suggesting a larger US financial contribution to IMF resources may be in the pipeline. However, we doubt this would have enough support in Congress at this stage in the US electoral cycle. Indeed the euro did not react to Geithner’s remarks. China’s CPI fell to 4.1% (cons. 4.0%) in December, but was still fractionally stronger than expected − AUDUSD fell 10 pips on the numbers, before recovering. Our European economics team is against consensus for today’s ECB policy meeting and looks for a 25bp cut − the first of two they expect to take place this quarter. The ECB will also be expected to comment on the results of the 3-year LTRO, which appears to have contributed to somewhat improved financial stability, while also lowering Eonia and euribor fixings. Record deposits parked at the ECB overnight are likely to draw some attention from journalists during Q&A. The Bank of England will also be deciding on rates and its asset purchase programme, but our UK economist expects no change – very much in line with consensus opinion. The first Spanish auction of the year is scheduled for 0930 GMT – our euro rates strategists expect it to go well, which could offer the euro some short-term support. US retail sales are due on Thursday, along with weekly jobless claims. EURUSD traded in a range of 1.2693-1.2728 and USDJPY 76.83-77.92.
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UBS Investment Bank