Dollar Rose As FOMC Minutes Affirmed September Tapering

The dollar strengthened overnight while stocks declined as FOMC minutes revealed that policy makers leaned towards tapering in September. The DOW dropped -105.44 pts, or -0.7% to close at 14897, below the 15000 level for the first time in more than a month. 10-year yield spiked higher and pared this week's losses to close at 2.855%. The US Dollar Index extended the rebound from 80.75 temporary low and is back at around 81.50 at the time of writing. In the currency markets, commodity currencies remained the weakest currencies so far this week, but Sterling and the euro seemed to be catching up.

US Treasury yields jumped, the US dollar soared and Wall Street plunged after the July FOMC minutes indicated that more Fed members leaned towards QE tapering later this year. While policymakers generally believed that it would be premature to begin reduction at the moment, the more dovish members signaled their willingness to consider starting the process in September if the economic data warrants. Policymakers suggested increasing the transparency of data thresholds' impact on the tapering process. Meanwhile, most participants favored maintaining the current thresholds while some favored lowering the threshold upon which the Fed would reduce monetary easing. More in Fed's Minutes Signaled That More Members Leaned Towards Tapering This Year.

Asian markets, though, pared some initial losses after the publication of China manufacturing data. The HSBC manufacturing PMI rose back to 50.1 in August, suggests that the mild contraction in the sector might be over. That also beat expectation of 48.2, economists noted that. The index argued that downside risks for second half of 2013 have declined. And China could be able to reach the government's 7.5% growth target this year, possibly maintain the same pace next year.

The eurozone PMI will be major focus in the European session. PMI manufacturing and services from Germany and France, as well as the eurozone overall, are expected to improve in the month of August. Both indices of Germany are expected to stay above 50. Eurozone PMI manufacturing is expected to stay above 50 while services is expected to rise back to 50.2. French PMI manufacturing is expected to rise back to 50.4 while services is expected to improve to 49.5. Attention will be on whether French PMI services could beat expectation and breaks 50 level. In such case, we'd likely see some eurozone strength in crosses.

Later in the data, Canadian retail sales is expected to show -0.5% contraction in June with ex-auto sales flat. US will release jobless claims, house price index and leading indicators.