Dollar Anxiously Eyeing Fed
The dollar weakened further overnight as the countdown to today’s FOMC meeting continued. RBNZ Governor Bollard kept the policy rate unchanged at 2.5%, and again referred to the strong New Zealand dollar which he said “undermined export earnings”. He blamed quantitative easing overseas as one reason for the currency’s strength, along with relative economic performance. Bollard also observed that Chinese economic growth has slowed but said that the Chinese growth outlook is more important for Australia than it is for New Zealand. Today, the SNB is due to announce its quarterly policy decision, and EURCHF continues to nudge higher in anticipation. We expect no change to the level of the floor in EURCHF at 1.20, and no change either to the SNB’s determination to defend it. But there is no question that investor attention will be squarely focused on tonight’s FOMC decision, forecast revisions, and subsequent press conference. Our US economists expect a new six-month program of asset purchases will be unveiled, totaling at least $500 billion and primarily focused on Treasury securities. Although consensus opinion amongst FX investors seems to be moving in this direction, such an outcome still has the potential to pile further downward pressure on USDJPY in our view – at least in the immediate aftermath of the announcement. As such we remain on BoJ intervention alert, with a particular focus on Friday morning Tokyo time.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank