Norges Holds
EUR traded generally heavy overnight, except against Sweden’s krona. An article in Die Zeit by ECB President Draghi attracted market attention. Draghi noted that “exceptional measures” are required to fix blockages – in the monetary policy transmission – caused by markets fragmented due to irrational fears. Though he did not highlight the bond-buying programme, it appears that the ECB is focused on removing the risk premia that are related to fears of a euro breakup. The ECB’s Sept. 6 meeting is probably too early for the central bank to finalize the details of how that could be achieved. We believe the prospect of another ECB press conference lacking in specifics could weigh on the euro in the days ahead. The 0.5% rise in EURSEK to 8.36, a four-week high, during New York hours reflected soft manufacturing and consumer confidence data reported by Sweden earlier, as well as the market reacting to Sweden’s National Institute of Economic Research predicting that the Riksbank could cut its benchmark rate by 50bp to 1.0% this year. This led to SEK selling across the board. NOKSEK rose above 1.14 after Norges Bank left its deposit rate at 1.5%. Deputy Governor Qvigstad noted that the Norwegian economy is “faring well” and that the NOK has “recently appreciated somewhat”. He added that the central bank could hike rates “between December 2012 and summer next year”. Given the central bank’s tolerance of a strong krone, we could expect to see further gains in NOK – provided the import-weighted rate I-44 does not drop sharply below 85. In the US, July pending home sales rose 2.4% m/m and 15.0% y/y, beating consensus forecasts for 1.0% m/m and 11.1% y/y, respectively. Q2 real GDP growth was revised up to 1.7%, as expected. The dollar made some headway in thin trading. It advanced marginally versus the yen after Japanese Vice Minister of Finance Nakao said that that the MoF will take “decisive action” in the FX markets. Ahead today, Italy auctions EUR7.5 bn bonds.
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UBS Investment Bank