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The US Dollar gained overnight against most major currencies as markets consolidated this week’s big move following the Fed minutes.

The move against the Euro was accelerated as investors viewed the Federal Reserve as more likely to begin removing stimulus before the European Central Bank. The EURUSD drop has so far been contained by support in the lower 1.3000 handle, which also held up the pair yesterday.

The Pound also tumbled against the Big Dollar on sentiment that the Bank of England will maintain its stimulus measures. This led 10-yeal Gilts yields to decline for the 5th  straight day. The GBPUSD rate ground lower through both the Asian and European sessions, testing the waters in the upper 1.5000 area, but has found support at yesterday’s lows.

New Bank of England (BoE) governor Mark Carney was quick to establish a new order at the BoE last week when he commented that investors were “not  warranted” in expecting interest rates would rise in 2013. Commenting on financial markets was traditionally something the BoE didn’t do.

According to a survey of economists done by Bloomberg, expectations are the Carney will go a step further, and offer forward guidance, perhaps by linking interest rates to economic data””likely unemployment.  Similar to how Bernanke tied the Federal Reserve overnight rate to inflation and unemployment.

Comments overnight from Chinese Finance minister Low Jiwei that suggested the central government would be ok with an economic growth rate of 6.5%, versus the official target of 7.5%. While conflict between the official policy and the comments certainly adds a bit of confusion to the situation, markets seem to have taken the inconsistency in stride.

The Shanghai Composite ended the day 1.6% lower following a massive 2 day rally, however other Asian equities shrugged the news off, managing moderate gains on the day.  The AUDUSD dipped slightly on the comments, adding to the session’s losses. General sentiment saw the Australian unit pare gains made earlier this week on general USD weakness. Mounting concerns that the Reserve Bank of Australia will cut interest rates at its next meeting also weighed on the Aussie overnight.

The Loonie got caught up in the overnight activity, pulling back from the 3-week high it touched earlier in the week. Despite the wild swings in the USDCAD this week the pair continues to trade inside recent ranges. Thus sentiment remains bullish for the pair with a move back up towards resistance at 1.0600 in the cards given the right catalyst. On the topic of the Loonie, next week will be new Bank of Canada (BoC) governor Poloz’s first policy announcement. Markets will be watching the event closely to see if Poloz’s BoC looks materially different from the previous governor Carney’s BoC.

US Producer Price Index data was released this morning at 0.8% month-over-month, which bests the consensus forecast of 0.5% according to Bloomberg and points to increasing inflationary pressures in the world’s largest economy. According to the report from the Department of Labor which compiles the data, much of the increase was due to gasoline prices. The USD has been stronger following the release, extending overnight gains.

Further reading:  AUD/USD Below 0.90 – only to bounce back up (so far)