A Softer EUR
The US overall CPI came in flat m/m in July against a consensus estimate of 0.2%, as food prices moderated and energy prices dropped. USDJPY sold off as Fed policy expectations softened, but rebounded on a positive industrial production number, showing a 0.6% m/m rise in July against the 0.5% consensus. Moreover, the housing market index surprised to the upside, printing 37 in August versus the 35 consensus estimate. Dallas Fed President Richard Fisher reiterated his well-known hawkish stance, noting that further stimulus measures from the Fed “would not have an impact” and may be viewed as a “political” decision. Fisher said fiscal and regulatory uncertainty is inhibiting investment, but he does not see a “high likelihood” of a recession in 2013. EURUSD fell amid thin trading, and while familiar ranges held, investors are still leery of the loaded events calendar in September. The BoE minutes revealed unanimous decisions on both the Bank Rate and QE programme. More crucially, the minutes confirmed that there was no discussion of further rate cuts. The MPC remains in wait-and-watch mode for the time being, though our UK economics team now expects both an expansion in the QE programme and a 25bp rate cut in November. Nonetheless, GBP remained well supported, helped by strong UK employment data, which saw a net 201k jobs added in Q2. UK jobless claims dropped by 5.9k (against the consensus call for a 6.0k rise) and the claimant count rate came in at 4.9% in July. We expect GBP to retain a firm profile against EUR over the near-term, with our 1m EURGBP target remaining at 0.77. Ahead today, the July business PMI is due in New Zealand. A stronger than expected number here could further encourage the RBNZ to keep policy on hold to the benefit of NZD.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank