Talking Points:

US Dollar Outperforms as Markets Prepare for Key US Economic News-Flow
British Pound to Continue Lower if PMI Data Undermines BOE Policy Bets
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The US Dollar outperformed against its leading counterparts in overnight trade, rising as much as 0.3 percent on average to set a new four-year high. The move may reflect pre-positioning ahead of the week’s first batch of high-profile US economic data releases. September’s ISM Manufacturing and ADP Employment figures are on tap.

In trend terms, US economic news-flow has been gradually (if unevenly) improving relative to consensus forecasts since early April. That has fueled speculation that the Fed may opt for a relatively short time gap between the end of QE3 later this month and the first subsequent interest rate hike, building yield-based support for the greenback.

The Australian and New Zealand Dollars bore the brunt of the selloff, falling as much as 0.7 and 0.3 percent respectively. The outsized losses may have reflected the amplifying effects of risk aversion on the sentiment-sensitive currencies. The MSCI Asia Pacific regional benchmark stock index fell 0.1 percent after hitting a four-month low yesterday. We remain short AUDUSD.

September’s UK Manufacturing PMI data headlines the calendar in European hours. A modest acceleration in the pace of factory-sector activity is expected, with the index inching up to 52.7 having registered at a 14-month low of 52.5 in the prior month. UK economic data has turned softer relative to consensus forecasts over the past three weeks, leading front-end Gilt yields lower to signal ebbing BOE tightening bets. More of the same this time around is likely to weigh on the British Pound and we remain short GBPUSD.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

23:30

AUD

AiG Performance of Mfg Index (SEP)

46.5

–

47.3

23:50

JPY

Tankan Large All Industry Capex (3Q)

8.6%

7.0%

7.4%