Major Overnight Headlines
* PBoC to set up ‘managed floating’ CNY rate, cut ratio of T-bonds held to maturity, increase capital account flexibility
* China’s 7-day repo rate declines the most in 4 months overnight as PBoC adds liquidity, Bloomberg
* ECB’s Asmussen says network bank resolution agency ‘simply won’t function’
* Euro Area Sept. construction output down 1.3% MoM; German Nov. ZEW weaker but expectations rise
The PBoC headlines today may actually be more relevant for the ECB and the weaker EUR theme than they are for US Treasuries or the USD in the very near-term (see below). On balance, the flexibility the PBoC headlines offer China and the global monetary system over time seem to outweigh the need for a recalibration of certain asset prices right now. Greater flexibility does not equal recalibration – only, perhaps, the potential for recalibration over the medium-term. Moreover, there appear to be too many conflicting points here to permit a clear, intraday bias in FX.
Read the full report: FX Daily
BMO