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Idea of the Day

The dollar has turned around over the past two sessions, with support overnight coming on the back of the latest Fed minutes, together with the growing expectation that a deal will be reached on the US debt ceiling. The Fed minutes were more finely balanced, with several members saying that the decision was “a very close call”. But a move by the end of this month is still looking fairly unlikely given the interruptions from the government shutdown and the lack of reliable data that has resulted from this. These events could well lead to a more sustained dollar rally, but as always it’s a matter of timing, with the continued government shut-down still likely to keep a lid on the dollar for the time being.

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Data/Event Risks

USD:  We’re suffering from a severe lack of data owing to the government shutdown in the US, but the weekly claims data is scheduled to be released today. Market looks for small move higher to 311k, from 308k last week.

GBP:  Little reason to get excited about the Bank of England decision today. There is a risk that we get a statement, but this was not the case after the September meeting, so the new governor has yet to give a consistent approach on this. Leaving this risk aside, there is a strong expectation that rates and asset purchases unchanged.

Latest FX News

PY:  Recovering for the third consecutive day and USDJPY holding above the 200 day moving average and continues to be the preferred way to play US situation, with outperformance early October now having been followed by yen underperformance as temporary deal looks more likely.

AUD:  The labour market data better than expected overnight, showing the unemployment rate falling to 5.6% (from 5.8%). The Aussie pushed up towards the 0.9480 area on the back of the news, but the generally firmer dollar tone meant that the gains were unable to be sustained.

GBP:  Taking a hit on the back of the latest production numbers yesterday, with weaker tone on table being held by the firmer tone to the US dollar overnight.

Further reading:

Australia posts mediocre job figures – AUD/USD falls

FOMC Minutes boost USD – Tapering isn’t off the table