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Idea of the Day

There was a decent bounce-back in the Aussie overnight, once again proving that although the Australian currency may be down, it’s certainly not giving up the fight. The move to near the 0.9000 level was more related to flows around an option expiry at 0.8950 today, with the weaker PMI data from China only having a very brief effect on the currency early on. The price action on the Aussie and also on the euro yesterday are indicative of an FX market dominated by flows and struggling to find a larger theme now that tapering has started, albeit modestly so. This could well characterise the coming month, given that we don’t see dollar strength coming through until later in the year.

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Data/Event Risks

GBP:  After firmer house price data overnight, the construction PMI data will be in focus at 09:30 GMT. The manufacturing data was a touch weaker yesterday, but sterling took the news in its stride.

USD:  Data is light today, but note that Fed Chairman Bernanke speaks later in the day. His term finishes at the end of this month, so views and speeches of replacement Janet Yellen now increasingly more important to listen to.

Latest FX News

GBP:  The latest house price data firmer than expected at 1.4% MoM on the Nationwide measure, rising more than 8% annually. Sterling was suffering more than most yesterday in the face of a firmer dollar, with the market seemingly not in the mood to push to new highs on cable.

EUR:  We were mindful of the risk for euro correction lower yesterday, based on the fact that the temporary factors that had supported the euro into year-end were waning. Money market rates moved lower yesterday, but the 3M money market rate remains 9bp higher than it was when the ECB cut interest rates in November of last year.

Gold:  Recovering once again and now above levels prevailing when the Fed announced tapering in the middle of last month. If Asian gains are sustained, this is shaping up to be the best week for gold since mid-October.

Further reading:

ISM Manufacturing PMI remains strong at 57 points

US jobless claims at 339K – within expectations