Dollar Bears May Want to Ease Off
25/08/09 22:08
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UBS economists wrote that the White House lowered its FY09 deficit forecast to $1.580 trillion (11.2% of GDP) from $1.841 trillion (12.9%). However, longer-term deficit projections were revised up by roughly $2 trillion over the next ten years. The US deficit remains a longer-term concern for the dollar, though we think it is better for dollar bears to wait until later in the year.
The bulk of the downward revision to the Office of Management and Budget (OMB) FY09 deficit forecast reflected the removal of a $250 billion placeholder for further TARP-type legislation that was included in its earlier projections. As noted, the OMB significantly raised its out-year deficits. According to the OMB, the changes to the longer-term deficit are primarily driven by changes in its economic assumptions. Read More...
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UBS economists wrote that the White House lowered its FY09 deficit forecast to $1.580 trillion (11.2% of GDP) from $1.841 trillion (12.9%). However, longer-term deficit projections were revised up by roughly $2 trillion over the next ten years. The US deficit remains a longer-term concern for the dollar, though we think it is better for dollar bears to wait until later in the year.
The bulk of the downward revision to the Office of Management and Budget (OMB) FY09 deficit forecast reflected the removal of a $250 billion placeholder for further TARP-type legislation that was included in its earlier projections. As noted, the OMB significantly raised its out-year deficits. According to the OMB, the changes to the longer-term deficit are primarily driven by changes in its economic assumptions. Read More...
GBP Suffered Resulting from BoE Minutes
19/08/09 21:04
The Deparment of Energy's crude oil inventory data
sharply surprised investors as they reported a
drawdown of 8.4 million barrels versus a build of 1.2
million. WTI crude oil jumped on the back of the
report and continued to gain throughout the session,
climbing to $72.20 at the time of writing.
Correlations continue to show an inverse relationship
between the dollar and oil prices but the USDJPY/oil
correlation has noticeably started to shift.
ECB Governing Council member Weber said the surprise expansion of German Q2 GDP occurred largely because of stimulus measures already introduced and the increase may therefore not be sustainable. He warned that the German economy is likely to recover only slowly with GDP growth unlikely to reach levels seen in 2008 until 2013. Weber's comments echo ZEW president Franz who said, "There is, however, no reason for euphoria. The German economy develops parallel to the world economy and should, hence, recover only gradually." 3mo view EUR/USD 1.30
Read More...
ECB Governing Council member Weber said the surprise expansion of German Q2 GDP occurred largely because of stimulus measures already introduced and the increase may therefore not be sustainable. He warned that the German economy is likely to recover only slowly with GDP growth unlikely to reach levels seen in 2008 until 2013. Weber's comments echo ZEW president Franz who said, "There is, however, no reason for euphoria. The German economy develops parallel to the world economy and should, hence, recover only gradually." 3mo view EUR/USD 1.30
Read More...
FOMC As Expected
13/08/09 00:08
The latest FOMC decision was as expected, with no
change to the Fed Funds target range and no
additional purchases of Treasurys. The dollar
immediately strengthened following the statement
before it gave up its gains just as quickly as
investors remain uncertain whether previous
correlations between risk-seeking and dollar weakness
should persist. But the FOMC statement, at the very
least, did not spark a mass exodus from the dollar.
The August 12 FOMC statement repeated the line from previous statements signaling no increase in the funds rate for "an extended period"; that line is likely to be removed well in advance of an increase in the funds rate. The statement was changed a little to reflect relative improvement in the economic data recently, with signs that "economic activity is leveling out" (ie, not contracting anymore). Read More...
The August 12 FOMC statement repeated the line from previous statements signaling no increase in the funds rate for "an extended period"; that line is likely to be removed well in advance of an increase in the funds rate. The statement was changed a little to reflect relative improvement in the economic data recently, with signs that "economic activity is leveling out" (ie, not contracting anymore). Read More...
Eurozone economic data did not beat expectations
05/08/09 22:11
New Zealand Workshop
Aug 14-16
Eurozone economic data did not beat expectations as much as UK data but nevertheless provided some positive momentum heading into the ECB decision. We expect the ECB will not change the official rate, but most important is the press conference for any signals of potential future policy actions. But we also think there is a chance the ECB could be more dovish on balance, wich will pull EUR back.
Despite the recent string of positive data, the ECB decision may be more delicately poised than the market is currently positioned for and the recent breakout in EURUSD above the June high would only increase the ECB's fears that monetary conditions are tightening earlier and at a faster pace than necessary. As EUR strengthens, it puts further pressure on the economic conditions.
The Article IV consultation by the IMF published last week issued several warnings for the Eurozone economy and in particular called for the Governing Council to fully utilise what little margin it still has for rate cuts. It is interesting to note that at every single post-meeting conference, ECB President Trichet stressed that 1% is not the floor in rates, indicating that there is still a body of opinion within the Governing Council which favours further cuts. While we are by no means suggesting that the ECB will administer an unexpected cut, we think at the very least it is possible that the outcome would be more dovish than expected.
Read More...
Aug 14-16
Eurozone economic data did not beat expectations as much as UK data but nevertheless provided some positive momentum heading into the ECB decision. We expect the ECB will not change the official rate, but most important is the press conference for any signals of potential future policy actions. But we also think there is a chance the ECB could be more dovish on balance, wich will pull EUR back.
Despite the recent string of positive data, the ECB decision may be more delicately poised than the market is currently positioned for and the recent breakout in EURUSD above the June high would only increase the ECB's fears that monetary conditions are tightening earlier and at a faster pace than necessary. As EUR strengthens, it puts further pressure on the economic conditions.
The Article IV consultation by the IMF published last week issued several warnings for the Eurozone economy and in particular called for the Governing Council to fully utilise what little margin it still has for rate cuts. It is interesting to note that at every single post-meeting conference, ECB President Trichet stressed that 1% is not the floor in rates, indicating that there is still a body of opinion within the Governing Council which favours further cuts. While we are by no means suggesting that the ECB will administer an unexpected cut, we think at the very least it is possible that the outcome would be more dovish than expected.
Read More...