[B]Market Review[/B] - 20/11/2013 [I]19:38GMT [/I]
[B]Euro tumbles broadly on ECB’s dovish news[/B]
The single currency tumbled broadly on Wednesday following reports in Bloomberg that sources close to the ECB said central bank will consider cutting deposit rates to below zero if more easing is needed.
During the day, although the single currency rose to session high at 1.3580 in Australia in reaction to Bernanke’s comments, price pared gains in Asia and retreated to 1.3517 in European morning before recovering to 1.3547. Later, euro fell again in New York morning after news from Bloomberg said ECB would weigh -0.1% deposit rate if more easing needed. Price penetrated 1.3517 and eventually tumbled to low of 1.3415 after FOMC minutes before stabilizing.
Versus the Japanese yen, the greenback weakened in Asia and European sessions as an official said proposed reforms of Japan’s government-run pension fund may take years to implement. Dollar fell to session low at 99.78 in European morning and then traded sideways before rebounding to 100.25 in New York afternoon after FOMC minutes.
The panel advising Japan’s leaders on how to overhaul the 121 trillion-yen Government Pension Investment Fund said the world’s biggest manager of retirement savings should review its holdings of domestic bonds and diversify its investments into overseas assets.
Despite falling to session low at 1.6104 in European morning, the British pound rose to a fresh 3-week high at 1.6178 in New York morning as BoE’s MPC minutes painted an upbeat picture of the country’s economy, however, dollar’s broad-based firmness in New York session pressured price sharply lower and cable retreated back to 1.6097 post FOMC minutes.
BoE stated in MPC minutes that ‘MPC sees sustained recovery activity in UK, GDP likely to grow above long-term average in H2; MPC sees distinct upside and downside risks for UK growth after H2; external environment unlikely to drive UK growth, domestic fiscal consolidation to continue, so handover from household to business spending crucial for recovery; unclear about how much of sterling appreciation effect to be passed to consumer prices; MPC growth and inflation projections underline there cud be a case for not raising bank rate immediately when 7% threshold hit.’
Fed Oct minutes stated that 'many Fed members felt if economy warranted it could decide to slow bond purchases at one of its next few minutes; a couple of participants favored lowering the 6.5 percent unemployment rate threshold.
Many members continued to see downside risks to the economic outlook as having diminished at Oct meeting; a few participants inclined to set quantitative floor for inflation; committee met by video conference on Oct 16 to discuss contingencies in event Treasury not able to meet obligations.
Fed staff provided in video conference possible actions Fed could take if there were disruptions to market; Fed considered whether to note impact of government shutdown in Oct statement but decided this might overemphasize role of shutdown in policy deliberations.
Video conference participants saw no need to change Fed operations in case of delayed Treasury payments; most participants thought a reduction in interest paid on excess reserves worth considering at some stage.
Video conference participants generally agreed Fed would use prevailing market value of securities in all transactions if Treasury payments delayed; some participants suggested announcing a timetable for wind-down of bond purchases, or a total size for program.’