Dollar Rebounds Further On Hope Of Resolution To Fiscal Impasse

Dollar extended rebound against European majors and yen on hope that there would be temporary resolution in US fiscal impasse and government shutdown. There were reports that Republicans and Democrats are floating around the possible increase in the debt limit to allow time for full negotiations on the budget. Meanwhile, President Obama was inviting politicians from both parties for a meeting in the White House. In addition, Obama finally nominated Yellen for the Fed chair job after Bernanke's term expires on January 31. He hailed that "America's workers and their families will have a champion in Janet Yellen." It's believed that Yellen would easily win confirmation in the Democrats controlled Senate. As a known dove, Yellen is expected to hold her hands on withdrawing stimulus for a longer than expected time and her nomination provided some support to market sentiments.

Although the Fed failed to announce tapering in September, the FOMC minutes unveiled that most policymakers expect it to begin this year. The minutes showed that the Fed decision to not taper last month was driven by the tightening in financial conditions, uncertainty over the fiscal outlook and the ambiguous economic data released since the June meeting. Meanwhile, policymakers were divided into 2 camps when considering whether to taper with the first camp mainly concerning about whether economic conditions warranted tapering while the second focused on how the tapering decision would affect the credibility of the Fed monetary stance. More in Fed Members Continued To See Tapering This Year, Despite The September Disappointment.

Elsewhere, the Aussie is mildly lower today as data showed less than expected growth in the job market in September, by 9.1k versus consensus of 15.0k. Unemployment rate, on the other hand, dropped to 5.6% versus expectation of staying unchanged at 5.8%. Two leading Australian banks expected earlier that RBA won't cut again this year, but rather have another rate cut in early 2014. PIMCO also noted that the there would be sub-trend growth in Australia and RBA is likely to cut rates lower. Also released from Australia, consumer inflation expectation rose 2.0% in October. Released from Japan, tertiary industry index rose 0.7% mom in August, machine orders rose 5.4% mom.

Looking ahead, BoE rate decision is a main focus today. BoE is expected to keep raters unchanged at 0.5% and maintain the asset purchase size at GBP 375b. Back in August, the central bank announced that it will keep rates at record low at least until unemployment falls below the 7% threshold level. And, in addition to that, the central left open the door for further asset purchases should the economy fails to gain momentum. Other events to watch include ECB monthly bulletin, Canada new housing price index and US jobless claims.