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US dollar and yen gain on global slowdown concerns

Europe is continuing to set the direction for not only the currency markets, but overall global risk sentiment and equities as the European debt level continues to be centre of attention. Because of this, sterling is really being pulled back and forth as the pound continues to feel the pressure from a bullish dollar, but also feels happy to make moves on the under-fire single currency. Despite the German vote in favour of expanding the EFSF yesterday, doubts still remain on the euro's ability to survive in its current form. Sterling also caught a bid off comments from the SNB where an official from the Swiss national Bank announced it is likely the bank will be raising their share of portfolio in sterling, something which will take place over the coming year, which would lead to sterling strength. Another boost for the pound came as UK consumer confidence rose for the first time in four months in Septemberas Britons because more optimistic about the economic outlook and spending. An index of sentiment gained 1 point from August to minus 30. Nothing to scream about, but an improvement still the same.
No major financial data, but remember to set the alarm clock for the England vs Scotland game tomorrow morning at 08.30am. 

Victory for Merkel in the parliamentary vote could prove short lived not only for the euro but also for Germany as the powerhouse of Europe comes under increasing pressure from EU officials to deliver fresh proposals to give the rescue fund a supercharged boost.According to officials, Eurozone finance ministers are not likely to decide on the EFSF leverage at Mondays meeting. They also point out that the eurozone will not choose any leveraging method that results in credit downgrades of the EFSF. The outcome for the single currency after yesterdays' will they or wont they vote, the euro had a brief rally but then normal euro bashing service was resumed as the market was not fooled into believing the single currency is out of the woods. If anything, it has just taken another step into darkness, as the view is officials are to far behind the curve and that the bailout fund will have to be increased multiple times grater than the current size of the EFSF fund. Also hanging around the euro neck at present is speculation the ECB will lower borrowing rates next week. Eight of 22 economists surveyed by Bloomberg saif the central bank will cut its benchmark interest rate by at least a quarter from 1.5% at its Oct 6th policy meeting. Swap traders are betting the central bank will lower the rate by 35 basis points over the next 12 months. Combine this with the sovereign debt issues in the region and the fact the market  has turned to be pricing in rate cuts by the ECB can explain the recent downtrend in the euro, with possible further losses. 
No major data.

Another choppy session in global markets yesterday saw risk off and risk on trades take hold at various stages and there was very little market news towards the US close as equity markets were unable to hold onto their initial gains as risk averse currencies made gains boosting the dollar. Fixed income markets caught a bid on the equity sell off as the euro surrendered its earlier gains against the dollar to trade just above flat for the day. The dollar gained against most of its major counterparts as economic data added to signs that global growth is slowing, supporting the demand for safe haven currencies including the buck. Market talk of a dovish New York think tank report on the BoJ garnered some attention. The report suggested that Japans central bank may ease monetary policy further next month seeing the Yen pare its gains against the US dollar. 
No major.

• New Zealand has lost its AAA grades on local-currency debt at Fitch and S + P, which both cited concerns abnout the nations fisdcal burnden. This has seen the Kiwi fall against its counterparts with GBP/NZD alone gaining over 3.5% in the pounds favour this week
• Reflecting its growing concerns about the global economic outlook,, Pimco is dialing back exposure to riskier assets and moving to relatively high investments. Like many investors, Pimco's fund managers have cut their outlook for the global ecobnomy, which has been rattkled by continued uncertainty from the euro nzones soveriegn debt-crises.



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