Dollar Soft in Asia, But Risk Markets Getting Cautious

Dollar remains generally soft in Asia today but overnight's selloff halted as risk takers are starting to get cautious ahead of tomorrow's job market data from US. There has been rumors about an imminent announcement of Greek PSI deal but so far nothing have been confirmed yet. It's reported that while most details on the debt swap deals were completed, there is some fundamental difference between IMF and Germany that's holding the deal back. It's said that in IMF's view, PSI, which involves cutting the face value of EUR 200b of Greek debt, is insufficient to reduce the country's debt to 120% of GDP in 2020. And, IMF has raised the the need for so called OSI, or "official sector involvement" in parrallel to PSI, "private sector involvement", that is, sacrifices from ECB and other Eurozone governments. However, that faced strong opposition from Germany which requires the gap to be filled by deeper austerity in Greece rather than by funding from other Eurozone governments. Regarding the PSI deal, reportedly, the agreement comprises a 72% haircut, 3.6% coupon and a GDP warrant (which will pay creditors when GDP exceeds target) for private investors of Greek government debts.

While the market has been worrying about the fiscal and growth problems in other peripheral European economies, Fitch's stated that Portugal doesn't present significant risk to the Eurozone as ‘the government there is committed and credible. The economy is highly indebted, but they are working on organizing a debt-for-equity swap...That is the right strategy and in the near term we don't see them as a significant risk to the rest of the euro zone'.

Japan Finance Minister stepped up the rhetoric on yen strength as USD/JPY is starting to approach record low again. Azumi said that "speculative moves are increasing in the market" as "yen's buying has strengthened, led by short-term and speculative moves on the back of expectations for low interest rates in the U.S. until 2014." Azumi said the government is "calmly watching market moves very closely" and pledged to "respond by taking firm measures". Meanwhile he also urged BOJ to "take account of economic conditions and various factors in deciding policy, including quantitative easing". The comments raised speculation that Japan is getting closer to closer to intervention. However, we must note again that US has criticized Japan's intervention during second half of last year and thus, G7 coordinated intervention is highly unlikely. And, impact on unilateral intervention should be weak and short-lived.

On the data front, Japan monetary base rose 15% yoy in January. Australian building approvals dropped -1.0% mom in December. Trade surplus came in larger than expected at AUD 1.71b in December. Macroeconomic data will still remain under the spotlight today. Swiss trade balance, UK PMI construction and Eurozone PPI will be released. A number of releases will be related to the US job market. Initial jobless claims probably fell -2K to 375K in the week ended January 28. Challenger will also report its estimates on the percentage of job cuts in January. These will probably give some guidance on the non-farm payroll report due on Friday. Currently, the market anticipated the US would have added 150K new positions in January, down from 200K a month ago. The jobless rate would have stayed at 8.5% in January.