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USD Weakened On Rate Speculations

Published 10/14/2014, 03:48 AM
Updated 03/09/2019, 08:30 AM

Dollar weakened this week as traders pushed back bet of first hike after comments from Fed officials. Federal funds futures are now showing less than 50% chance of rate hike by September next year, comparing to over 50% last week and nearly 70% two months ago. Chicago Fed president Charles Evans reiterated that he's opposed to Fed tightening before 1Q16 on "risk considerations". He also noted that a rising US dollar would create a "headwind" for the economy as it drags on exports and lowers import prices. These might lower the overall inflation. More importantly, Fed Vice-Chair Stanley Fischer said over the week end in IMF meeting that while Fed's rate hike would not have a negative impact on the global economy, the first hikes might "trigger bouts of volatility, the normalization of our policy should prove manageable for emerging market economies". EUR/USD's recovery suggests that the corrective rise from 1.2500 isn't finished and could extend higher in near term.

In the Eurozone, the common currency climbed higher on the greenback's weakness, upstaging concerns over France's budget outlook. ECB's Governing Council member and Bundesbank head Jens Weidmann urged EU Commission to be tough with France on budget so a to avoid the likely breach of EU budget deficit guidelines in 2015. He continued to urge for structural reforms and criticized that central bank policies had proved unsuccessful in overcoming the debt crisis. Weidmann's comments on French deficit were echoed by the Dutch Finance Minister Jeroen Dijsselbloem, who noted that "with all respect for France, this gap must be reduced". French Finance Minister Michel Sapin indicated last month that the country would run a budget deficit of 4.3% of GDP in 2015, compared with the committed target of 3%. While this would put France's budget in "serious non-compliance" with EU's deficit rules and the EU has signaled rejection of such budget, the government indicated that it would not adopt further tightening measures.

In China, the PBoC lowered the 14 days repos yield for the second time in a month. Yield on the 14 day bond repurchase agreement was lowered to 3.4%, down from 3.5%. Economists said the central bank is guiding funding costs lower as they're relatively high on historical basis. And lower real funding costs would help support a slowing economy.

On the data front, Japan's M2 money stock rose 3.0% yoy to JPY 876.8T in September. This was higher than consensus of a 2.9% increase. Australia's NAB business confidence index fell -2 points to 5 in September while the reading in August was revised -1 point lower to 7. Disappointment in the survey has led the NAB to revise its growth "modestly" to 2.8% for 2014/15 from previous estimate of 2.9%, and 3.2% for 2015/16 from 3.4% previously. It expected the unemployment rate to peak at around 6.5% while the RBA's cash rate would stay unchanged until "near the end of 2015".

Looking ahead, inflation data will be a focus in European session. Swiss will release PPI. UK will release CPI and PPI. German ZEW economic sentiment will be another focus while Eurozone will also release industrial production.

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