Dollar Stayed Weak Against Europeans Despite Tapering Talks

The dollar continued to shrug off tapering talks and weakened against European majors. The dollar index dipped to as low as 80.019 in Asian session before recovering and looks set to take out 80 psychological level today. St. Louis Fed Bullard threw the idea of small December tapering in a speech overnight. Bullard said that "based on labor market data alone, the probability of a reduction in the pace of asset purchases has increased." And, "a small taper might recognize labor market improvement while still providing the opportunity to carefully monitor inflation during the first half of 2014." He noted that "there is no widely accepted reason why inflation is running as low as it is" but "should inflation not return toward target, the Fed could pause tapering at subsequent meetings."

Meanwhile, Dallas Fed Fisher also said that "it's time to taper" as the USD 85b asset purchase program "far exceeds" the benefits. He urged Fed to reduce the purchase "at earliest opportunity". Regarding inflation, Fisher noted that there is "a surfeit of excess liquidity sloshing about in the system" and "the idea of ramping up inflation expectations from their current tame levels strikes me as short-sighted and even reckless." Also, from US, Richmond Fed Lacker warned that "if we change the setting of one policy instrument like asset purchases, it's going to be hard to convince people it doesn't have implications for the path of short term interest rates." And, he urged Fed to "take very good care that we're clear and market expectations are aligned with us on the path of short-term rates."

BoE governor Carney said that the forward guidance has been "effective" for the UK economy so far and there is no need to reinforce it by changing the thresholds. He noted that a recovery in UK "may be gaining pace" even though it's "a long way from normal". He said that "leverage is still high and weak demand for advanced economy exports could persist for some time." Meanwhile, "as the economy recovers, investment should pick up and part-time workers should shift into more productive full-time work."

On the data front, Japan money stock M2+CD rose 4.3% yoy in November, tertiary industry index dropped -0.7% mom in October. Australia NAB business confidence dropped to 5 in November while home loans rose 1.0% in October. UK RICS house price balance improved slightly to 58 in November. Some economic data from China will be released today. UK production data and trade balance will be the main focus in European session. US will release wholesale inventories.