Yellen Even More Dovish
Fed Vice Chair Yellen sounded even more dovish than current Fed guidance, opining that the optimal trajectory for US monetary policy would hold the policy rate near zero until early 2016. She also gave her backing to new proposals intended to help guide market expectations for when the Fed may start to hike interest rates. These would possibly include specifying numerical thresholds for the unemployment rate and inflation, although even if these thresholds were crossed, rate hikes would not automatically follow. Tonight’s FOMC minutes may shed further light on these proposals. Moody’s again referred to the US sovereign rating. The agency noted it currently has the Aaa rating on outlook negative, but said it is unlikely to wait beyond 2013 to resolve the outlook, adding that it expects a political deal on the US debt position sometime in 2013. Euro was temporarily buoyed by reports that Germany is considering bundling all three outstanding Greek aid installments together, and disbursing them to Greece in one fell swoop. The sums involved would reach a combined EUR 44 bn (considerably more than the current EUR 31.5 bn installment). Germany’s Finance Minister Schaeuble later confirmed that this approach was indeed being explored. Sterling got a boost after UK CPI came in well ahead of consensus, beating even the most hawkish of the 36 estimates collected in the Bloomberg survey. The headline rate hit 2.7 % y/y (cons. 2.4%, prev. 2.2%) vindicating the Bank of England’s decision not to extend the QE program last week. At the same time it raises the possibility of a somewhat hawkish quarterly inflation report due on Wednesday – although, as usual, Governor King’s interpretation at the subsequent press conference will be more important than the inflation fan charts themselves.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank