IFO Hits Euro
As expected, German officials quickly poured cold water over on an article in Der Spegel suggesting that there are plans to leverage up the ESM to give it an effective lending capacity of EUR 2 trn. A German Finance Ministry spokesperson described the idea as ‘not realistic’, which is not surprising given the same idea was floated twelve-months ago before being quietly abandoned. Overall CHF sight deposits at the SNB increased only fractionally from CHF 373.297nm to CHF 373.731. last week. This is confirmation that the SNB didn’t need to lift EURCHF off its floor and a reestablishment of the pre-floor correlations was enough to see the cross higher. The euro came under a bit of pressure after the German September IFO missed expectations. The current assessment came in at 110.3 vs 111.0 cons while the expectations index fell to 93.2 (95 cons) and business climate to 101.4 (102.5 cons). While the contraction in each of the sub-components is clearly a negative sign, an IFO economist noted that 50% of the responses came before the constitutional court ruling which gave the ESM the go-ahead. USDJPY inched lower overnight amid anticipation that Japanese life assurance companies will repatriate ahead of fiscal mid-year-end on Sept 30. The Australian Finance Review published yet another bearish article on the Australian dollar, helping to apply some downward pressure on AUDUSD. Returning to Japan, the BoJ minutes from the Aug 8-9 policy meeting showed that one of the nine board members suggested the bank should consider “exerting influence on foreign exchange rates” in a bid to redouble efforts to boost inflation expectations. Although the yen did not react to the headline, it does suggest the board’s ability to come up with new policy initiatives has not yet been exhausted. Deputy Governor Yamaguchi set the record straight in an overnight speech though, stressing that the BoJ has no intention of influencing FX rates. Again, no reaction. This week will see the Spanish government presenting the 2013 budget to parliament on Thursday and releasing the results of bank stress tests on Friday, but the euro is unlikely to be greatly affected by either event. A Greek Finance Ministry official
refuted a Der Spiegel report that put Greece’s budget gap at EUR20 bn, noting that the gap is currently EUR13.5 bn. The Troika committee, meanwhile, left Athens to take a “brief pause” and return in a week’s time. In the US, Atlanta Fed President Lockhart reiterated his support of the Fed’s QE program, adding that more easing may be needed if jobs growth is still sluggish.
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