Cable is currently trading little changed from the US close, EUR/GBP is just moderately higher though it has been a fairly choppy morning for the pound. In the wake of Friday's shockingly poor UK Q3 GDP data (-0.4% q/q) two opposing sterling influences have emerged. The first is a widely held view that based on better PMI survey data there is a good chance that GDP data for Q3 will be revised higher. The second influence is the growing certainty that the BoE will announce a step up in QE at next Thursday's policy meeting. This view was supported this morning by comments from ex-MPC member Blanchflower who is calling for a GBP50 bln extension to QE. The offsetting nature of these views may contain volatility in the approach to the Nov 5 policy meeting
EUR/USD is little changed from the European open. The USD was sold off overnight following a newspaper report published by the PBOC suggested that the share of EUR and JPY in China's foreign exchange reserves should rise. Clarification that this was an opinion piece followed. This pushed USD/JPY from the day's lows and EUR/USD back from its highs, though with this a very sensitive and topical issue for the USD, EUR/USD has retained its position comfortably above the EUR/USD1.500 level. This week's USD123 bln of US treasury supply could be a test of central banks' appetite for the USD. Demand for US paper from central banks this year has remained healthy suggesting that central banks are playing their part in ensuring that further declines in the value of the USD remain orderly. The keenly awaited release of US Q3 GDP data is due Thursday. This is expected to show the US has moved out of recession, which ironically should pressure the USD further via a step up in risk appetite.
The data calendar this morning has been light. German Nov consumer confidence data was disappointing; falling back to 4.0 from 4.3 in Oct with rising unemployment no doubt pressuring consumers. This weekend, the German government pledged to put growth ahead of the budget deficit. This should be reflected in consumer confidence going forward.
Weaker than expected Australian Q3 PPI data (+0.2% q/q) dampened enthusiasm for the AUD this morning, though expectations for a Nov 3 rate hike remain high.
NZ and Hong Kong were both closed this morning contributing to the fairly quiet start to the week. Dallas and Chicago Fed activity indices are due this afternoon but earnings reports will likely continue to be a determining influence on risk appetite.
