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Emerging market currencies are where the fortunes of the major currencies (and gold) could well lie for the remainder of the year.  They were one of the most sensitive asset classes to speculation of Fed tapering earlier in the year and rallied in the wake of the decision not to move earlier this week.

But there are also greater instabilities in the various countries themselves, with the volatility on the Indian rupee seen during August a reflection of this.  The central bank made the surprise decision to raise interest rates earlier today (to 7.50%), having moved to boost foreign exchange reserves earlier this month.

India has also undertaken measures to curb imports of gold in recent weeks. Leading indicators are also showing slowing momentum of emerging market.  The bottom line is that if investors take a more cautious view of emerging market currencies, then the dollar and less so the euro are likely to benefit, undermining the view that a lack of tapering from the fed will be overall dollar negative.

Data/Event Risks

CAD: Inflation data is seen moving lower on both the headline and core rates to 1.1% and 1.3% respectively. The Canadian dollar has been the weakest of the dollar bloc in the wake of the Fed decision earlier in the week, the kiwi and Aussie far more buoyant.

GBP: The public sector borrowing data not often a mover for the currency, but if way out of line from the expected GBP 5.2bln surplus on the PSNC number (i.e. towards a deficit), sterling could again find itself under modest pressure into the end of the week.

Latest FX News

GBP: The retail sales data proved to be something of a reality check for sterling, which had in some ways run ahead of itself on the back of better than expected data. The lack of buying after the initial push lower also backed up the picture of a currency feeling a little heavy in the legs.

JPY: The yen was the weaker performer in the wake of the Fed decision, rising to a high of 99.62 before pulling back slightly during the Asia session.

AUD: The Aussie holding the weaker tone gained in the latter half of the Europeans session yesterday. RBA board member Edwards again hinting at the desire to see a weaker currency.