Currency markets remained volatile overnight after the fundamental release of the FOMC minutes. After coming under some downward pressure on a covering of short dollar positions ahead of the release of the minutes of the September FOMC meeting, the euro appears to have resumed its upward trend versus the dollar. Dovish in tone, the FOMC minutes seemed to indicate that the Fed is moving closer to introducing a second round of quantitative easing (QE), with some speculating that it could come as soon as the next meeting in early November. This will weigh on USD price movement going forward particularly if Investors favor riskierSTERLING assets.

Sterling continues to underperform other majors versus the USD, undermined by talk that the Bank of England is also edging towards another round of QE. Comments from MPC member Miles yesterday indicated that he is in favor of further policy support with the economic outlook very uncertain. This follows comments from BOE member Posen who also supported the view that further liquidity is needed to support the Banks. Data released overnight by Nationwide showed that UK consumer confidence fell to its lowest level in a year in September, this primarily due to the fact that the spending cuts are due for announcement within the next week, this further weighed down on the Pound and once again provides an opportunity for any sellers. UK Jobless claims will headline the economic diary during European hours with expectations of a modest increase of 4,500 in September. It is unlikely this will support any movement however speculators may look to take profit following the release.

Looking at the performance of the Australasian currencies the AUD and NZD continue to perform exceptionally well with the Pound currently trading at one of the lowest levels seen against the Aussie. This provides an excellent opportunity for sellers but as I mentioned in my previous update the AUD still looks overvalued on a purchasing parity basis and a long awaited correction is still likely.The Pound currently trades down below the key psychological 1.60 level and looks set for further declines – The fact that all market participants are “short selling” against the Pound isn’t helping matters.

The USD/EUR rate looks set for another challenge of $1.40, while dollar/yen continues to edge towards the Y80 level. There is little in the way of fresh US or euro zone data due for release today and therefore it is likely the markets will be tracking equities which have started the day positive across the board and may well progress as Wall Street opens this afternoon.

If you would like to discuss your requirement with me further do not hesitate to give me a call on my direct line +0044 1736 335264 or email me at tom.trevorrow@torfx.com

Tom Trevorrow

Senior Trader

Tel: +0044 1736 335264

Email: tom.trevorrow@torfx.com