EUR/USD

The major pair heads into the European close with gains of around 50 pips as the pair touched its highest level since early May at 1.3189. The majority of the gains were made in the early hours of the session after optimism toward the fiscal cliff talks was lifted by Obama raising his threshold on tax rate increases to those making above USD 400,000, prompting participants to conclude that differences between the parties are narrowing. Asian central banks were said to be buying on the ascent through to session highs just ahead of the midpoint of the European session, however source comments from the German finance ministry that the government was considering lowering their 2013 growth expectations quickly took the shine off the single currency. Talk of offers heading into 1.32 also capped any further gains. In tomorrow’s session, the calendar remains light, with construction output data for October likely to highlight output weakness on the continent once more. For tomorrow’s NY cut, vanilla option expiries stand at 1.31 as well as 1.32, which could keep the market rate from straying too far from current levels.

GBP/USD

The GBP currency has gained against most others in today’s European session, falling slightly short of September highs of 1.6258. The recovery in the currency was assisted by sovereign demand into year-end; however resistance provided by Asian sovereign names offering at 1.6230 prevented the pair from breaking to further multi-month highs. The UK inflation report confirmed expectations with CPI Y/Y at 2.7%, giving participants little room to speculate toward future BoE policy. With the US session coming underway, the USD remained lower, allowing both GBP/USD to trade at new multi-year highs of 1.6271 in the final hours of the session as a touted option barrier is erased at 1.6250. In tomorrow’s session, the Bank of England’s minutes at 0930GMT will draw focus, ahead of retail sales figures on Thursday, and lastly the final GDP reading for Q3 on Friday.

USD/JPY

The pair has had a more muted session than the previous few, as USD/JPY consolidates for much of the session in close proximity to a large vanilla option expiry at the 84.00 figure. Participants await the Bank of Japan’s rate decision this Thursday as an indicator for the short-term trend in the JPY, as it remains unclear as to whether the central bank will adopt the new government’s desired 2% inflation target or remain resistant. In tomorrow’s session, further option expiries at the 83.75, 84.00 and 84.25 could keep the pair within recent ranges as traders look for further clues this Thursday.