UK Budget Due
FX markets have maintained the narrow ranges seen but risk appetite is on a better footing compared to previous sessions. Growth sustainability on a global basis remains the focus but the lack of negative headlines is now seen as a sufficient enough reason to stay the course, especially with policy expectations in the balance. Bernanke’s comments later today may shed some more light on where the Fed is headed, but the sensitivity of markets towards downside growth revisions would not have been missed by the Fed and we would expect him to choose words carefully, especially if queried on the recent moves in US yields and whether the FOMC would be compelled to respond. Yesterday he cautioned against moving too quickly to reverse the policies that are helping the economy, but mostly added nothing new to the equation. Overnight oil inched higher again – slowly recovering after the Saudi Arabian oil minister’s assertion that output could be boosted immediately to address any shortages helped to bring crude prices down. We certainly remain in the ‘no QE3’ camp in the US, reflecting in part our sense that housing activity is picking up. Those seeking further evidence will be looking ahead to the February existing home sales data later today. UBS forecasts a further 1.0% m/m rise, after the 2.3% m/m advance in the three months ended December and the 4.3% m/m gain in January. The BoE meeting minutes release overnight showed a 7-2 split, with Adam Posen and David Miles advocating a GBP25bln expansion in the Purchase Programme, though the bulk of the UK focus today will be on the Budget Speech and forecast releases by the Office of Budget Responsibility. We do not expect to see much in the way of GBP-positive developments, especially with growth worries persisting in the Eurozone acting as a drag on UK growth . On the Eurozone front the economic and political establishment have been staying off the wires, while the EFSF is managing to maintain issuance without much incident, which should be welcomed by Brussels as external support for firewall enlargement is looking increasingly hard to come by. Overnight EURUSD traded 1.3224-1.3284 and USDJPY 83.54-84.00.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank