Forex - Dollar Benefits From Lower Equities Amid Speculation China Stimulus May End
China's impressive GDP figures overnight ignited speculation that we may be close to a point where stimulus is soon removed from the system, sending Asian equities lower and the USD back from the brink of its lowest levels since the beginning of August last year. The 4 trillion Yuan stimulus package has certainly been a key factor in helping China emerge resilient from the financial crisis, and in turn, helping to drive the recovery of many of its trading partners. Despite Chinese cabinet ministers being quick to reassure markets that stimulus would remain in place for now, risk appetite has certainly weakened this morning and sent the USD higher. Meanwhile this morning's main market-mover has been Sweden's Riksbank Rate Meeting. As expected the Riksbank kept rates on hold at 0.25%, but reiterated their intentions to keep rates on hold until Q3 2010 and affirmed they would offer another SEK 100bn to banks through 12-month tenders. The central bank they lowered their inflation forecasts for both 2009 and 2010; they now see deflation in running at -0.4% in 2009 (from -0.3% prior estimate), and 2010 inflation reduced to 0.9% (from 1.2% prior). The outcome was perceived as dovish by the markets, and triggered a sharp sell-off in SEK as USDSEK spiked to just below 6.9400, and EURSEK hit a high of 10.3760. The remaining focus has been on GBP this morning as UK's Paul Tucker stated the BoE could increase QE "if necessary". The comments were taken to imply he may be on the side of King and Miles who voted for more QE back in August, and given weekend press that indicated MPC member Posen might also be in that camp, we might be looking at 4 votes in favour of more QE in November (out of a possible 9). The UK Retail Sales figures this morning have done little to improve the outlook in the UK, posting a disappointing 0.0% MoM in Sep against expectations for a 0.5% rise. That is now 2 consecutive months of zero prints for UK Retail Sales, certainly not encouraging signs of a recovery in domestic demand.