Though the easing bias still exists for the Fed, converging rates and continuing investor preference for dollar liquidity should be dollar supportive as investor risk appetite remains wary. The Fed swap lines show how far the global credit crisis has extended and come amid efforts by the IMF to address credit concerns in emerging market nations. Now that the Fed has cut, the onus is on other central banks to take further actions to address the negative economic backdrop and difficult credit conditions. Ahead today, core PCE (cons and UBSe 2.5%, prior 2.2%), Q3 GDP (cons -0.5% Q/Q annualized, UBSe -1.0%, prior 2.8%) and initial jobless claims (cons 475k, prior 478k) are due at 830 ET.

JPY: Investors still eye a cut
Data from the MoF will show the latest flows by Japanese and foreign investors for domestic and foreign securities. The prior week saw foreigners reducing Japanese asset holdings and domestic buying of foreign assets. The focus continues to be on the upcoming BoJ meeting, as press reports suggest investors are expecting the BoJ to cut. However, with interest rates in Japan already very low it is dubious how stimulus the move would really provide. Indeed both fiscal and monetary policy in Japan is largely impotent and with a stagnant domestic economy, the yen remains a reflection of risk aversion given its role as the major funding currency in the global economy.

EUR: Confidence indicators due
Eurozone confidence indicators are all expected to go lower. Consumer confidence is expected to be -20 (prior -19) and economic confidence 86.0 (prior 87.7). After seeing a record low consumer confidence reading in the US and the slew of recent poor data, lower than consensus results should not be too surprising. German unemployment is expected to remain unchanged at 7.6%. Despite more room for the Fed to potentially cut, the ECB has even more room to cut. Weakness in the macro environment continues to point to a sell in the EUR.

AUD: Inflation may limit cuts
Deput RBA Governor Battellino said inflation may limit how far the RBA can cut rates, though he acknowledged that inflation is manageable. Battelino also spoke about housing weakness, though he said that it would not extend as far as the current situation in the US as the Australian boom did not create an oversupply of unsold homes. He said that although Australia faces a bigger economic challenge than it did back in 2001, the country is on track to avoid a recession. The RBA has signalled further easing, but the depth of the cuts was unknown. After having reduced rates by 100bp in the month of October, UBS economists currently are calling for a further 50bp cut at the November meeting.

GBP: Uncertainty weighs on pound
FSA data showed that home repossessions were up 71% on the year in Q2 and other releases show that the number of homeowners set to enter negative equity will rise sharply. Similar to the US, the UK economy will not be able to rebound until the housing market slowdown begins to reverse, which is unlikely in the medium term. BOE's Tim Besley said that falling commodity and energy prices points to decreasing inflation risks. Besley is a known BoE hawk and a moderation in his stance confirms that the MPC is fully focused towards addressing the looming recession the upcoming rate meetings. Uncertainty over the economy and policymaker calls for an adjustment in the economic structure-which has direct implications for the currency-is hurting the pound and data is not expected to provide any relief. Housing figures showed a slight improvement in housing figures, as mortgage approvals rose slightly to 33k and net lending on dwellings came in at GBP 2.2bln, well above expectations of 0.8bln. Consumer credit continued to shrink however and came in at GBP 0.3bln.

Ref: UBS

Chris Lori

Tags: Rate Cuts