Dollar Still Selling Off
USD remained on a weakening trajectory overnight as the countdown to Thursday’s FOMC decision continues. Meanwhile the broad unwind of short euro positions is still underway in anticipation of a benign ruling from Germany’s Constitutional Court today. It is likely the Court will approve the introduction of the ESM, clearing the way for the EUR500 bn bailout fund to get formal German approval. This could prompt a short-term relief bounce in the euro, but the focus could soon shift to what the Court has to say about possible limits on further integration steps, and scrutiny over these details could cause the euro to eventually give back any gains.. The European Commission is due to present proposals for a single banking supervision mechanism in the Eurozone following EC President Barroso’s State of the Union Address in the European Parliament. Elsewhere, the RBNZ will have its policy meeting later today – we expect no change in the benchmark cash rate of 2.5%. Also due is the Dutch election. The latest polls show Prime Minister Rutte’s Liberal Party and the Labour Party running neck-and-neck, albeit well short of a majority. The large pool of undecided voters suggests that the risk of a more euro-negative outcome cannot be dismissed, as any coalition government including either the far-left (anti-austerity) Socialist Party or the far-right (anti-euro) Freedom Party could foster heightened uncertainty over future integration steps in the Eurozone.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank