Draghi Denies The Doves
Though the ECB left rates unchanged as expected, dollar bulls were initially emboldened by ECB President Draghi’s reference to “downside risks” to the economic outlook and the steeper than expected 27k drop in US initial jobless claims to 365k. However, EURUSD and USDJPY were soon back in familiar ranges, as Draghi did not serve up clear hints of a rate cut (or any other measures), noting that the current stance is “accommodative”, nominal rates are “historically low”, and liquidity is “abundant”. On the LTROs, Draghi simply commented that “we will need time to see how and when this money will propagate to the real economy”, and clarified his position on the “growth compact” by highlighting the importance of structural reforms. Draghi did not meet the dovish expectations which had intensified ahead of the ECB decision, giving EURUSD a boost. USDJPY came off its highs on the weaker than anticipated 53.5 April ISM non-manufacturing print, which reflected declines in the key new orders (to 53.5 from 58.8) and employment (to 54.2 from 56.7) sub-indices. GBPUSD shrugged off the soggy services PMI for April of 53.3, as the forward-looking components improved – reinforcing our view that there will be no further QE from the BoE this month. The stage is now set for Friday’s US employment data for April. Here, we would stress that the below-consensus ADP figure of 119k has not altered the above-consensus 170k payrolls forecast of our US economics team. Risks, however, would appear to be skewed to the downside, given the tendency for below-trend April readings in the BLS series with four-week sample periods like this year. Any undershoot on April payrolls compared to the 160k market consensus (89k-210k range), in the context of the weak March results, would certainly put the dollar on the back foot.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank