USDJPY Still Drifting Lower
The Australian dollar held reasonably well in the face of a weaker than expect Q4 CPI report – although it was a little soft, our Australian economics team doubt it will be enough to trigger a rate cut from the RBA in February. Meanwhile, a news vacuum out of Japan left an eerie silence in the wake of Tuesday’s Bank of Japan policy decision, which allowed investors to dwell on the disappointing aspects of the policy manoeuvre. Press reports in both the Wall Street Journal and the Nikkei newspaper turned more sceptical too, and USDJPY stayed heavy throughout the overnight session. Sterling traded lower on the back of dovish comments from Bank of England Governor King. He said the UK recovery is noticeably slower than that seen in other countries, adding that the Bank is ready to provide more stimulus if needed. He also kept the door open to a possible future rate cut – noting the presumed merits of a cut are still being assessed. Again he talked down the pound saying a weaker currency would help economic rebalancing. The comments were delivered well after the European close on Tuesday and probably have yet to exert their full currency impact – especially if similar sentiments are echoed in today’s BoE minutes. UK Prime Minister Cameron is likely to add to the downside pressure when he lays out his vision for the UK’s place in the EU during the London morning. Press reports suggest he will go so far as to propose holding a referendum in 2017 on the UK’s continued membership of the EU. Finally, the Bank of Canada is scheduled to announce its latest policy decision today, but we do not expect any material shift in stance.
Click here to read the full report: UBS Morning Adviser
UBS Investment Bank