Dollar On The Defensive
The minutes of the last FOMC meeting were more dovish than the market expected, triggering a broad-based USD sell-off during NY hours. Committee members considered several policy tools to provide additional monetary stimulus, including “a new large-scale asset purchase programme” and an extension of the rate guidance beyond 2014. The minutes also noted that members felt additional monetary accommodation (in some form) could be warranted “fairly soon”. Though the economic data flow in recent weeks has revealed some positive signs, the perceived risk that the Fed could announce additional QE is on the rise, heading into the Jackson Hole symposium on August 31. USDJPY came under pressure as UST yields dropped, while EURUSD vaulted over 1.25. Elsewhere, Greek Prime Minister Samaras made his case for giving more time to Greece to reach its reform targets by noting that Greece “will deliver” on reforms and will submit a EUR11.5 bn austerity plan “within weeks”. He added that he “personally guarantees” repayment of the rescue funds. After a meeting with Samaras, Eurogroup head Juncker said he is convinced that the Greek government will take all the necessary measures, but added that any extension of the deadline to meet deficit targets is contingent on the Troika report, which is due in late September. Juncker also noted that no decision on further Greek aid can be taken before October. German Chancellor Merkel, who is scheduled to meet Samaras later today said there “will not be any decisions” made in the meeting. In Canada, retail sales in June dropped by 0.4% m/m against a consensus of +0.1%. Following the weak housing, employment and inflation reports in recent weeks, the sluggish consumption data weighed on CAD.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank