The dollar gained against a broad basket of currencies after research from the San Francisco Fed published on Monday noted that large financial institutions that do business directly with the central bank see a more modest pace of rate increases than is indicated by Fed officials. Ahead of the next FOMC policy meeting on Sept. 16-17, the greenback surged against all of its G10 peers in an attempt to re-price the path for interest rate hikes to be more in line with the thinking of the FOMC.
Bank of Japan released the minutes of its August 7-8 monetary policy meeting, when the board maintained policy target unchanged as was widely expected. The minutes showed that most members shared the recognition that the Bank would continue with quantitative and qualitative monetary policy easing to achieve the price stability target of 2% as long as it was necessary. In recent comments BoJ Governor Haruhiko Kuroda said “I do not believe that a weakening yen is unfavorable for the Japanese economy” and considering the diverging paths of monetary policy in the US and Japan, we expect that this will most likely be the case.
Today’s action: During the European day, we get UK’s industrial production for July. The market consensus is for the monthly figure to slow down, while the annual rate is expected to accelerate. The country’s trade balance for July is also coming out and the forecast is for the deficit to narrow a bit. The data may be overlooked though as investors focus on the very tight race for and against Scottish independence. A poll by TNS-BMRB released overnight confirmed that the two sides are tied. This is important because it is the second polling company to show this result, which means the first one was not just a methodological fluke. Moreover, this company, the largest polling firm in the UK, has up to now shown one of the largest leads for the "no" side. The poll confirms that the momentum is with the "yes" side, which is likely to weigh on the GBP almost regardless of the result of today's indicators.
In the US, only economic indicators of secondary importance are released. NFIB small business optimism for August is forecast to remain near its highest level since October 2007. The Job Opening and Labor Turnover Survey (JOLTS) report for July is also due out and the forecast is for the number of job openings to increase marginally. While this indicator is not particularly market-affecting, it adds to the positive side of the mixed employment report released on Friday.
From Canada, we get housing starts for August. Following the rate decision last week, Bank of Canada mentioned that the activity in the housing market has been stronger than anticipated. The four straight above-forecast prints of housing starts confirm the Bank’s statement and increase the likelihood for another better-than-expected reading, which may strengthen CAD somewhat.