Dollar extended recent rally against euro and yen overnight and remains firm. The dollar index extended recent rally to as high as 89.00 so far. DJIA rose 33.07 pts to 17912.62 and S&P 500 rose 7.78 pts to 2074.33, both made new record high. Sentiments were supported by positive service data as well as Fed's Beige Book economic report. The report noted that economic activity expanded in all 12 districts with positive job growth and improvements in business expenditure. It said that "employment gains were widespread" and some contacts even reported difficulty in finding skilled labor and retaining employees. Nonetheless, "overall price and wage inflation remained subdued," with some districts only reporting "slight to moderate" rise in wages. Overall, the report depicted that the economy is heading towards the right direction, with prospect of acceleration in growth in some districts.
Canadian dollar was mildly higher after BoC left interest rate unchanged at 1.00% as widely expected but is stuck in familiar range against the greenback. BoC noted in the statement that "the hoped-for sequence of rebuilding that will lead to balanced and self-sustaining growth may finally have begun." Meanwhile it also said that, "weaker oil prices pose an important downside risk to the inflation profile", which was "tempered by a stronger U.S. economy, Canadian dollar depreciation, and recent federal fiscal measures." Overall, " the balance of risks remains within the zone for which the current stance of monetary policy is appropriate and therefore the target for the overnight rate remains at 1 per cent."
Aussie stays soft in spite of positive economic data. Retail sales rose 0.4% mom in October versus expectation of 0.1% mom. Trade deficit narrowed to AUD -1.32b in October. Eurozone retail PMI, US Challenger job cut, initial jobless claims and Canada Ivey PMI will be released later today.
But the main focus will be on ECB and BoE rate decision. Recent comments from President Mario Draghi and other members suggested that the central bank is getting ready to extend asset purchases to include government bonds. However, December would be too early for the move as 1) the central bank has just started the purchase programs for asset-backed securities (ABSPP0 and is only a few more weeks into the covered bond purchase programs (CBPP), and 2) some Board members have indicated that the central bank will only reassess its stance in 1Q15. Indeed, 1Q15 would be a better timing. The take-up for the December TLTRO will be known by January 22 and more inflation data points coming out, giving the ECB more information to assess the impacts of the current asset purchase programs. Meanwhile, the EU court's advocate general would have provided his opinion on the pending OMT case, by that time. The highlight of the December meeting should be the staff projections. Note that the staff projection in September did not take into account any of the policy measures announced since June, including the the TLTROs, the ABSPP and the CBPP3. The ECB had anticipated that these measures would boost its economic forecasts. Meanwhile, we also expect to have estimates beyond 2015 and the ECB traditionally extends its projections by another year in December. BoE would stand pat on policies and would likely be a non-event.