USD weaker on poor data

Today's Highlights

Sterling stays strong as BOE member hints at early rate hikes

USD weaker on poor data

Euro braced for ECB decision

FX Market Overview

There is a growing tension within the Eurozone as France and others test the outer limits of the EU's regulations financial constraints. The French Finance Minister has said, "We refuse austerity," and they have demonstrated that by delaying the reduction of their deficit yet again. The 2015 budget sees the deficit only marginally contracting to 4.3% from 4.4% this year and the reduction to 3.0% in 2017 looks fanciful at this stage. That is a direct challenge to the EU Commission. Will there be repercussions? Probably not but the euro is still weak as a result of this and all eyes now switch to the ECB interest rate announcement today and the press conference that follows.

On the GBP front, the newest member of the BOE monetary policy committee, Kristin Forbes commented yesterday on how the strength of the Pound has masked inflationary pressures. That chimes with the Bank's suggestion that interest rates will start rising in 2015 (Q1 or Q2). She also talked about how wage price inflation was starting to gather momentum. Sterling remains strong and any hint of an earlier hike or a more compelling argument for interest rate hikes will further strengthen it. There is a dearth of UK data today so expect some consolidation around current levels.

A swathe of slightly negative US data yesterday allowed the US Dollar to weaken in most exchange rates. A quick round up reveals a drop in ISM Manufacturing confidence, a 0.8% drop in construction spending, a fall in the Chicago purchasing Managers Index, a drop in consumer confidence and a slowdown in house price rises. If that isn't enough bad news, preliminary forecasts for Q3 economic growth suggest the figure will decline from the Q2 number and that may put the Federal Reserve's interest rate hikes on ice for a little longer. Further USD weakness may well ensue.

We heard overnight that Australian building approvals reflected a buoyant property market in August and the trade deficit also narrowed a tad in August. That was positive news and that, plus the easing of the value of the US Dollar was enough to strengthen the Australian dollar. The US Dollar weakness also allowed the Canadian Dollar to strengthen and it may well stay a tad stronger until tomorrows export trade data which is should show a slowdown in demand. The New Zealand Dollar is another currency that gained from weakness in the USD overnight.

That's about it for today; the lightest day for data this week. Tomorrow brings the US employment report and that is still a big focus for traders. If they are bored though, they can always check out the video that is circulating on the interweb which promotes breast cancer awareness by showing how many times men check out the cleavage of an attractive model wearing and unbuttoned top and a very pink bra. The result is obvious and I hadn't realised just how furtive glances could be.