BoE, FOMC Views In Focus
Risk was generally firm during the Asia session overnight and the prospect of accommodative Fed policy for longer has done this cause no harm. 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. Given many expect her role within the Fed could evolve into greater prominence over the coming year or so, the market will be taking greater note of any policy specifics on her part. In the immediate future though, the market is eager to understand what the Fed has in mind for the replacement (if at all) of operation twist and today’s FOMC minutes release could provide some initial forward guidance ahead of the full December meeting. 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. For the time being, and in the wake of Greece’s issuance yesterday, some immediate event risks have yet again been navigate d hough it may only be a matter of time before markets once again seek some structural solutions. Overnight EURUSD traded 1.2701-1.2728 and USDJPY 79.39-79.80. The BoE’s inflation report will be released today.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank