Dollar Grinds Lower
After a directionless Asia session, the dollar sold off slightly in Europe on Monday, though news flow was limited. The euro pushed back beyond 1.23 while the Nordic currencies were the standout under-performers. A weak Q2 GDP print out of Japan failed to disturb USDJPY, although soft data such as this certainly raises the risk of additional policy easing from the Bank of Japan and so should in theory be yen-negative. New Zealand Finance Minister English said he would prefer if the New Zealand dollar were weaker, but such comments are not new and have long since lost their ability to influence NZDUSD. German Vice Chancellor Roesler expressed disappointment at Greece’s efforts to implement reforms and also underlined comments from Eurogoup chief Juncker that a Greek exit “isn’t our aim, but would be manageable”. Comments from Merkel’s CDU party that Germany has “reached the limit of its capacity” and may veto any additional aid if Greece does not fulfill its obligations, are not likely to help the euro’s cause – but with the troika’s inspection report not due until early October the risks to the euro as not imminent. San Francisco Fed President Williams, a voting member of FOMC this year, said Friday that he “now” supports another round of an “open-ended” QE, echoing comments of his Boston counterpart, Rosengren. However, in the wake of firmer US data in recent weeks, we believe it is unlikely that the Fed undertakes a fully-fledged QE programme in September. Further easing could, however, come by making it easier for banks to access funds from the Fed’s discount window. We keep our end-2012 EURUSD forecast of 1.15. NOK underperformed following some soft retail sales numbers (falling 1.1% m/), though this is a volatile time series and the y/y numbers remain robust.
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UBS Investment Bank