FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400)
USD
Risk appetite has been firm in Asia, mainly due to continuing optimism that EU officials may be nearing a solution to the debt crisis and better-than-expected data releases. The FOMC’s Sept 20-21 meeting minutes showed some officials wanted to keep further asset purchases as an option to boost the economy. Without a marked improvement in labour market conditions, there is little scope for the Fed to become less worried about growth conditions, and hence it will leave all options open. In Australia, employment rose the most in seven months, well above market expectations, and the unemployment rate dropped back to 5.2% from 5.3% in August. This suggests there is little scope for an RBA rate cut this year – in contrast to market expectations. With hopes of a solution to the EU debt crisis continuing to rise and little scope for the Fed to become less dovish on monetary policy in the near term, risk sentiment is likely to stay supported. As positioning in pairs such as EURUSD or AUDUSD remains skewed to the downside, there’s scope for additional gains and dips should therefore be bought.
EUR
ECB Executive Board member Gonzales-Paramo said the pursuit of price stability remains the central bank’s main objective and that it tries to keep market interventions at the lowest appropriate level.
Incoming ECB President Draghi warned that if high Italian bond yields persist, they could negate the benefit of fiscal consolidation (by raising debt servicing costs). He said there was a danger that an “ungovernable” spiral could develop.
Greek Prime Minister Papandreou is due to meet Eurogroup Chairman Juncker and EU Council President von Rompuy on Thursday, and also to speak with IMF Managing Director Lagarde and US Treasury Secretary Geithner in the coming days.
Reuters reported that an extra meeting of Eurozone finance ministers is being scheduled for Oct. 21 – two days before the full EU summit is due to take place.
GBP
UK jobless claims for September came in lower than expected at +17.5k (cons. 24.0k), although the unemployment rate rose to 8.1% (cons. 8.0%; prev. 7.9%).
Bank of England MPC member Dale said the MPC voted for more QE primarily because the UK economy slowed down in Q3, and is expected to slow further in Q4. The MPC will assess the right scale of QE purchases on a monthly basis, Dale added.
JPY
According to the BOJ September minutes downside risks to growth have increased but not below levels taken into consideration at the August meeting already. Still some board members said further easing may become necessary in the future should conditions deteriorate further abroad.
SCHEDULE
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