Greenback Support Fades on Hilsenrath Comments | Daily FX Commentary

• Aussie dollar recovers from lows as Greenback support falters;
• Sterling approached 10-months lows against Greenback ahead of CPI data;
• Greenback under pressure as nerves mount ahead of FOMC statement.

The Aussie dollar once again broke below $0.90 during Asian trade yesterday, wiping out gains from the previous session which were largely due to increased iron prices. Buoyed overnight as recent support for the US dollar faltered, the Aussie managed to rally before meeting resistance above $0.91. Anticipation that the Fed will fail to deliver a more hawkish policy statement on Thursday has seen support for the US dollar drop overnight but may well be hot air stemming from comments made by a Wall Street Journal article suggesting that policy is unlikely to change on Thursday. The RBA made it clear in minutes released yesterday that they remain comfortable with current policy as they sit on their hands for yet another month. Comments of an overheating housing market sparked speculation that tighter policy may be needed at some stage but gains were limited and dollar strength resumed.

The pound approached 10-month lows against the greenback as volumes remained thin and nerves jittery for Sterling traders. The release of inflation data saw the pound bounce from lows and data as the numbers, despite moderately weaker than last month, were largely in line with expectations. Although we saw a leap of faith in the UK data, the real test will stem from wage inflation data this evening as this is what will really influence BoE policy. The latest Scottish independence opinion poll by ICM and the Scotsman newspaper places the ‘No’ camp in front, although only by small margins when excluding those who remain undecided. We saw a brief bounce off the back of this but there is still great uncertainty surrounding Thursday’s voting and we can’t see any real Sterling momentum ahead of the decision.

Following a report published by Jon Hilsenrath (Chief Economics Correspondent) in the Wall Street Journal overnight, Greenback support faded on speculation that the Federal Reserve will fail to deliver a more hawkish tone in Thursday’s FOMC that the market has been waiting so long for. Suggesting that the policy statement will be focussed around the end of asset purchases, perhaps eliminating dovish rhetoric in the October meeting rather than this month in line with the expected end to asset purchases, caused panic in the greenback that has been pricing in a more hawkish Fed for the last couple of weeks. However, the doors remain open for the Fed to give the markets what they want on Thursday and panic may only be temporary and exaggerated.