Dollar Looking Steadier
The lack of any economic data releases overnight allowed the US dollar to get back on its feet and reclaim some lost ground. Still tempering the US dollar’s upside is the cautious stance of Fed Chairman Bernanke, who said in a transcript of an impending television interview that “it’s far too early to declare victory” and while “the recent news has been good…I think we need to be cautious and make sure this is sustainable”. In response to a question about further easing, Bernanke noted “we don’t take any options off the table…we don’t know what’s going to happen in the future, and we have to be prepared to respond to however the economy evolves”. That said, there is nothing here that alters our view that the US recovery will be sufficiently durable to prevent the Fed from adopting QE3, offering broad support for the US dollar. Indeed, at 70.2 in March, the US Conference Board consumer confidence index held on to most of its hefty February increase (from 61.5 in January to a revised 71.6). Moreover, the S&P Case Shiller home price index was unchanged m/m in January (consensus -0.3% m/m), and more timely indicators have given even stronger signals of stabilisation. Predictably dovish comments from Boston Fed President Rosengren (“if real GDP does not grow more rapidly and unemployment remains at its current unacceptably high level, monetary policy may need to be more accommodative”) were countered by predictably hawkish comments from Dallas Fed President Fisher (QE3 is a “fantasy of Wall Street”). Fisher added that “before you tighten you have to stop accommodating and I don’t believe we need further accommodation” – basically summing up the view of our own US economics team. Ahead today, we expect below-consensus prints for total US durables orders in February (UBSe 1.8%, cons. 3.0%) and orders ex-transport (UBSe 1.0%, cons. 1.7%), but the uptrend should remain intact.
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UBS Investment Bank