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Yesterday, Europe decided it wanted to undermine the firmer dollar tone that emerged during the Asia session, with sterling the most prominent beneficiary of the dollar reversal. During December, more than usual, the FX market is about flows and positioning, rather than reacting to shifting fundamentals. We did see some modestly better manufacturing PMI numbers for the UK yesterday, which helped the better underlying tone to the pound.

Overnight, we’ve seen steady rates from both the RBA in Australian and the Indian central bank. Both decisions were as expected, although there is some better scope for a cut in rates in India in the early part of next year should the falling oil price start to feed through to headline inflation. The Aussie rallied modestly in the wake of the RBA decision, having made a fresh low for the year at 0.8417 early yesterday.

For today, key data releases are again thin on the ground. With oil prices staging a modest rebound yesterday, then it looks more likely that we are going to hold in established ranges for the most part, especially with equity markets also softer from the recent highs. UK construction PMI is seen at 09:30 GMT, with Aussie GDP released overnight, together with manufacturing PMI data in China and India.

Further reading:

UK Construction PMI slides to 59.4 – GBP/USD follows

Previews of December’s big events, importance of jobless claims, falling oil & negative GOFO – Market Movers #27