Sterling and Aussie are best performers

September 4, 2013

The main themes challenging currency markets are the major central bank policy meetings tomorrow y the European Central Bank, Bank of England and Bank of Japan. This should drive volatility higher by tomorrow.

Euro is flat leading into this ECB meeting, with many expecting a dovish tone by ECB Chief Mario Draghi and rates are expected to remain on hold at 0.50 percent.

The pound rallied after strong UK Services PMIs, however the Bank of England policy meeting tomorrow is key risk. If the bank reiterates its dovish stance this is likely to weigh on sterling. However the key interest rate is unchanged at 0.50 percent  and the asset purchase program on hold at £375bn.

GBPUSD is up 0.5 going into the US session on the back of the stronger than expected services PMI (which rose to 60.5 in August). 

Yen is generally weak leading into the Bank of Japan meeting. The BOJ is unlikely to shift policy too much but investors are being cautious nevertheless.

USDJPY has so far failed to break above key resistance at 100.0 yen, just touching 99.79 in early European trading before easing back down to 99.45 yen.

In the longer term, market expectations of diverging monetary policy between the US and Japan should push USDJPY well above 100.

The Aussie extends gains today, and is up 2 percent after better than expected GDP data as well as a recent uptick in China data to support it. China is a major export destination for Australian goods. AUDUSD rallied to a high of $0.9169, the highest since august 19. 

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