Dollar In Retreat
The dollar continued to weaken during the Asia session in the wake of the Aug. 1 FOMC minutes, although the sell-off was briefly interrupted by a weak private sector flash PMI out of China. EURUSD touched a high of 1.2553 in Asia and USDJPY still looks vulnerable after the sharp drop in UST yields. FOMC 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. Crucially, “many” members felt additional monetary accommodation (in some form) could be warranted “fairly soon”. Though the economic data flow in recent weeks has shown some improvement, a greater risk of additional QE is now being priced in, and investor interest in the Jackson Hole symposium on August 31 is now likely to intensify. Elsewhere, Greece’s Prime Minister Samaras announced he will submit a EUR11.5 bn austerity plan “within weeks” and 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 not due until 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. Today, PMIs out of Europe will be a key focus of market attention, along with US jobless claims.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank