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Quantitive easing forces weakness

Quantitive easing forces weakness

The US dollar slid to 15-year lows versus the yen overnight as Friday’s soft payrolls jobs data further fuelled expectations of more quantitative easing from the Fed at its next policy meeting in early November. Meanwhile, despite some speculation of a tough communiqué, weekend meetings by the IMF and G7 produced nothing to avert a cycle of competitive currency depreciation. There was a barrage of comments from policymakers but nothing coordinated, leaving markets in the mood to continue selling the dollar. With a Tokyo holiday thinning liquidity, it hit a low of Y81.40, which is likely to leave traders wary of intervention from the Bank of Japan. For now there is no sign of official action, which leaves the dollar vulnerable. The euro, meanwhile, has started the week around just below the $1.40 level as it seeks to retest last week’s $1.4011 high versus the USD.
Today, The GBP remains weighed down by the prospect of further action from the BoE, with this week’s round of data which includes the BRC retail sales survey for September, providing some insights. Versus the dollar, sterling has started the week just below the $1.60 level as it too benefits from the broad based sell off in the US currency.
It’s a quiet day for data releases today. In the US most of the interesting data releases come towards the end of week. Thursday has the August trade balance, expected to show a small widening in the deficit to around $43 billion. On Friday the more important consumer price inflation data is expected to show headline inflation at 1.2%, with the core a very benign 0.9%. This day also has a number of indicators of activity, with retail sales for September. These are expected to show pretty decent growth of around 0.4% on the month, which is partly being boosted by auto and gas sales – the core measure that strips these out is expected to show a 0.2% rise. Friday also sees the release of the University of Michigan Confidence survey for October. This is expected to show a rise, partly reflecting the recent equity market rebound. Alongside the data, tomorrow’s release of the FOMC minutes will be key.

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