Both the euro
and the US dollar came under selling pressure yesterday following comments made
by figure heads from the European Central Bank and the Federal Reserve. 

Both the euro
and the US dollar came under selling pressure yesterday following comments made
by figure heads from the European Central Bank and the Federal Reserve. 

New York
Federal Reserve President William Dudley defended the central bank decision to
leave quantitative easing unchanged at US$85 billion in monthly purchases.
Dudley stated that in his view the US economy still needs an accommodative
monetary policy and thus changes in policy will be in line with how financial
conditions evolve. Indeed earlier in the day, Markit PMI data proved this as an
expansion in the manufacturing sector fell short of expectations for the month
of September. 

ECB President
Mario Draghi announced possible plans for the central bank to reintroduce a new
round of low cost loans known as long-term refinancing operations (LTRO’s) to
financial institutions in the euro region. Whilst this news could be seen as
positive for the euro zone as the facility will enable more lending between
financial institutions; from an investment point of view the facility would
make the euro less lucrative as reintroduction LTRO’s will ensure low interest
rates and inflation remains on target. 

Earlier on the
day, Markit PMI announced that the manufacturing fell short of expectations in
September but services expanded even further, surpassing expectations. 

The pound
remained will bid yesterday ahead of data this week that is set to reveal that
UK house prices increased in September by 4.5%, consumer confidence improved
and the revised second quarter GDP is set to increase to 0.7%. All in all, the
once underdog pound is now being favoured by investors as speculation continues
to accumulate that the UK will raise interest rates well before the BoE’s
current guidance of three years and before the Federal Reserve increase theirs. 

Overnight we
saw some Indian rupee weakness after Moody’s downgraded the credit rating of
the country’s biggest lender, State Bank of India. Lack of confidence in the
bank could well prompt outflow of the rupee out of India from a lack of
confidence in equities in the country. 

This morning
German IFO business climate fell below expectations taking some attraction out
of the euro, although the weakness seems to be limited at the moment. 

Today there
seems to be renewed uncertainty surrounding the Feds thoughts on tapering
monetary stimulus as well as uncertainty surrounding Germany’s coalition talks.
Risk aversion seems to be the feeling amongst investors as can be seen as share
prices seem to be dropping from their recent all-time highs – this could well
prompt some US dollar attraction. 

Key Announcements: 

9.30am – GBP
– BBA Mortgage Approvals (Aug): Expected to increase to 38,600. 

14.00pm – USD
– Housing Price Index (Jul): Expected to increase to 0.9%.

14.30pm – USD
– FOMC Member Pianalto Speech.

15.00pm – USD
– Consumer Confidence (Sep): Expected to fall to 79.8.

15.00pm – USD
– Richmond Fed Manufacturing Index (Sep): Expected to increase to 17.