Global FX: USD Surges

EUR/USD
Continued focus on the Federal Reserve’s monetary policy programme has shifted the USD forward today, pressing the greenback higher and lifting the USD-index about 80.00. Snowballing momentum from yesterday’s session wherein participants brought forward their expectations for a Fed QE taper to early 2014, if not next Wednesday. Real money cross selling via EUR/GBP countered strength in EUR/JPY (initially lifted by hedge fund buying) as the EUR’s weakness was solidified by a contracting industrial production figure. The monetary union’s liquidity concerns were somewhat soothed today, as the ECB’s liquidity update showed less pressure on money supply than seen in preceding sessions. Tomorrow’s calendar remains light, with US PPI populating the data calendar, but unsurprisingly, thin conditions are expected to persist ahead of the Fed’s rate decision on Wednesday next week.

GBP/USD
Despite little newsflow and a for-now passive central bank, GBP gained today, as pressure on EUR/GBP and macro-buying in GBP/USD allowed the pair to breach 1.64 once more. The heatmap for GBP/USD remains tepid as markets await further clues, although MPC member Martin Weale’s recent criticism of forward guidance could provide near-term uncertainty. Should additional MPC members add their names to those criticising Carney’s forward guidance as not communicative enough, rates in the UK could resume their upward trend, lifting GBP and pressurising Carney to clarify the Bank’s forecasts and potentially stress that rates will not rise in a sub-7.0% jobless environment.

AUD/USD
After failing to find solace in stronger than forecast jobs numbers, the AUD/USD pair slipped sharply as the Reserve Bank of Australia governor stressed that the Australian economy requires AUD/USD valued at no more than 0.8500. After coming under heavy pressure, the AUD/NZD cross declined to multi year lows, approaching levels not seen since mid-late 2009. With the Australian PM Tony Abbott clarifying that the Reserve Bank of Australia have the firepower and permission to conduct FX intervention, any recovery in AUD could prove short-lived as traders take the opportunity to sell any near-term rallies.