EUR/USD
The euro was hovering close to 14 month lows against the broadly stronger dollar on Tuesday as the diverging monetary policy stance between the Federal Reserve and the European Central Bank weighed. The dollar has rallied in recent weeks amid expectations that the Federal Reserve may announce a rate increase earlier than expected after economic data indicated that the recovery in the U.S. is progressing strongly. The dollar’s rally paused on Friday after the latest U.S. employment report showed that the rate of jobs growth slowed in August, before shrugging off the data and resuming its run higher. The Fed is expected to wind up its asset purchase program in October and to start raising interest rates sometime in mid-2015. In contrast, the ECB looks likely to stick to a looser monetary policy stance. The euro weakened across the board after the ECB unexpectedly cut rates to record lows across the euro zone last week and unveiled new easing measures in a bid to shore up the faltering recovery and boost inflation.
GBP/USD
The pound held steady near 10-month lows against the dollar on Tuesday, after the release of mixed U.K. economic reports, as a weekend opinion poll indicating that support for Scottish independence is gaining momentum continued to weigh. Official data showed that U.K. manufacturing production rose 0.3% in July, in line with expectations, after a 0.3% gain the previous month. A separate report showed that the U.K. trade deficit widened to £10.19 billion in July, from £9.41 billion in June. Analysts had expected the trade deficit to narrow to £9.10 billion in July. The pound came under broad selling pressure on Monday after an opinion poll in The Sunday Times showed that Scottish pro-independence voters were narrowly in the lead for the first time since the referendum campaign began.
USD/JPY
The Japanese yen weakened further in Asia Tuesday after central bank minutes from the August board meeting focused on underlying inflation. The Bank of Japan in April 2013 launched an aggressive monetary easing with the 2015 target. At the August meeting, the board decided by a unanimous vote to leave the bank's policy target unchanged as expected - and did the same in September. Also due at the same time are July housing finance data where a 1.0% month-on-month rise is expected, after a 0.2% increase in June. Overnight, the dollar firmed against most major currencies after investors shrugged off Friday data revealing that the U.S. economy picked up far fewer payrolls in August than markets were expecting.
