FX Overview: Dollar on Backfoot

The US dollar remains on its back foot. The main driver remains the contrast between the likely trajectory of Fed policy in contrast to the ECB. Moody’s 1-notch downgrade of Spanish credit rating and news that Anglo-Irish needs another 6.4 bln euros on top of the 22.9 bln already injected, and possibly another 5 bln on top of that (in a stress case) has been shrugged off and the market has focused on news that European banks are relying less on ECB financing, strengthening the case for the exit that some officials indicated earlier this week. Better than expected Nationwide house prices, month-end demand, no deterioration in the Q3 BOE credit condition assessment has seen sterling lead the charge today and briefly poked above the $1.59 level for the first time in seven weeks. The dollar continues to edge toward the levels that were seen when the BOJ intervened. The low seen on Sept 14-15 was about JPY82.90 and today’s low thus far has been JPY83.16.