Draghi Lifts Euro
The euro staged another relief rally after some bold comments from ECB President Draghi. Reuters reports Draghi as saying the ECB will do anything within the mandate to preserve the euro. These comments tie in with his recent remark that ‘safeguarding the euro is part of our mandate’. He also alluded to possible use of the SMP or other yield capping measures being redeployed when he said that ‘yields disrupting policy transmission are in the ECB’s remit’. In similar fashion to Nowotny’s comments yesterday, EURUSD rallied around 1 big figure and periphery fixed income rallied across the curve. With the FX investor base heavily short euros, we continue to expect these sort of relief rallies, though the longer term trend remains one of euro selling. However, expectations of greater ECB involvement to help structurally change the path of the crisis are clearly building, and comments like we have seen today will add fuel to those expectations, even with the important clarification of ‘within the mandate’. Earlier, the RBNZ kept the OCR unchanged at 2.5% as widely expected, and also made no change to its essentially neutral policy stance. Accordingly our New Zealand economist sticks to his view that the policy rate will remain on hold until the March 2013 policy decision (when the first 25 bp hike is likely to be administered). There was no indication that a future OCR cut is under consideration and NZDUSD took some comfort from this, before rallying further in line with wider risk appetite in the European session. EURSEK continued its move lower, the June jobless rate came in at 8.8% vs 8.9% cons, 8.1% last; PPI at 0.2% m/m, 0.4% y/y and trade balance at SEK9.3 bn (in line with consensus). July consumer confidence rose to 5.6 vs 2.5 cons.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank