Dollar Soft Ahead Of FOMC

Dollar is soft against most major currencies, except yen, as markets are awaiting today's FOMC rate decision. We expect the Fed would announce expansion of the size of asset purchases by USD 45B at the December meeting so as the Operation Twist expires by the end of the month. Fed officials would release updates of their economic and policy projections at the meeting.

While we do not expect a significant shift in the economic outlooks, a new approach might be adopted, i.e. a joint forecast by Fed members would be published instead of releases of different sets of estimates by individual members. More in Fed to Expand Asset Purchases in December.

In Europe, ECB Executive Board member Peter Praet said that "there is little margin of maneuver" on interest rates and ECB should rather focus on "ensuring the effectiveness of monetary policy. ECB's "main issue" for now is addressing the significant divergence across eurozone rather than interest rates.

Praet also warned that "you have to be careful when you go into negative rates," especially on "bank lending conditions." And even if ECB is going to cut the refinancing rate, it might not move the deposit rate together, as "the corridor can in principle be narrowed, but not too much."

Greece will reveal the results of the bond buy-back program today. It's reported that the country received offers of EUR 31.8b and it would take EUR 11.2b for Greece to accept all offers, slightly above the earmarked EUR 10b agreed with eurozone finance ministers. Meanwhile, it's expected that full amount of buy-back will lower Greece's debt to GDP ratio by 11% in 2020.

No comment were made yesterday after a conference call between eurozone finance ministers on the results but a statement is expected today. Meanwhile, IMF chief Lagarde did said she "welcome the results that have be produced by the debt buy-back."

On the data front, Australia Westpac consumer confidence dropped -4.1% in December. Japan machine orders rose 2.6% mom in October, tertiary industry index dropped -0.1%, domestic CGPI dropped -0.9% yoy in November. UK employment data will be the main focus in European session.

Claimant count is expected to rise 5k in November while unemployment rate is expected to rise to 7.9% in October. Swiss ZEW, German CPI and eurozone industrial production will be released. In US, import price index will be released, followed by FOMC rate decision and Bernanke's press conference.