Bernanke Takes Centre-Stage
Fears over fresh commodity price declines continue to hang over the Australian dollar, but AUDUSD managed to consolidate overnight despite yet another batch of negative media coverage. A series of troubling headlines hit the wires as Europe walked in though, sending EURUSD briefly back below 1.25. ECB Governing Council member Nowotny declared that economic uncertainty in Europe is “growing massively”, and that Eurozone growth prospects are deteriorating. This could be a sign that an ECB rate cut is in the pipeline (our European economists look for a 25 bp cut to the refi rate on Sept. 6). Germany’s Bild newspaper carried an unsubstantiated report that Bundesbank President Weidmann had considered resigning. We note however that when asked about the possibility by a Der Spiegel interviewer as recently as two days ago Weidmann replied: “I can carry out my duty best if I remain in office. I want to work to make sure the euro stays as strong as the deutsche mark was”. The stage is now set for Bernanke’s speech to kick off the Jackson Hole Conference. We suspect he will flag all the potential easing options, but stop short of offering any clear guidance on what, if anything, the Fed will deliver on September 13. If the recent minutes are any indication, one risk would appear to be an extension of the forward rate guidance, though the absence of QE (our central view) would likely trigger a USD relief bounce. On that note, Bank of England MPC Member Posen revealed overnight that the Fed is interested in the BoE’s novel “funding for lending” scheme, which seeks to promote bank lending to the real economy. ECB Executive Board member Couere has responsibility for ECB market operations, and comments from him later today could shed some light on what form the ECB’s bond purchases may take.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank