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European Session – Euro dips to 1.06 handle, pound steady ahead of UK jobs

In the absence of any major economic data today, the market focus was on the dollar and expectations of a Fed rate hike. The greenback continued to consolidate its Friday rally and kept other major currencies under pressure.

The euro was unable to hold above the key support level of 1.0700 and fell to a seven-month low of 1.0673. The increasing divergence in monetary policy between the Federal Reserve and the European Central Bank, along with recent reports of a potential deposit rate cut by the ECB in December, are weighing on the single currency.

Disappointing French and Italian industrial production data today contributed to the softer tone for the euro. Also, ECB Governing Council member Liikanen’s comments today added to more pressure after he said that the central bank was willing and able to act by using all instruments available if there are inflation risks in the Eurozone.

Sterling remained in a small range against the dollar so far this week due to the absence of any key UK data. Wednesday’s UK employment report will be a key risk event for the pound. A positive jobs report would be an argument in favour of higher interest rates by the Bank of England. Today cable traded between 1.5090 and 1.5144.

The dollar stayed close to Monday’s near three-month high of 123.59 yen and traded around 123.20 yen.

There was not much reaction to US data today which included the NFIB Small Business Optimism Index for October. It was unchanged at 96.1. Other data showed US import prices extended their decline for a fourth month. While this was a larger decline than the -0.1% expected, it was the smallest drop over the past four months at -0.5%. Diverging polices between the Fed and the Bank of Japan kept the yen weak as did softer Japanese current account data out today.

The greenback was steady against the Canadian dollar in a range between 1.3248 and 1.3296. The Australian dollar fell versus the US dollar to 0.7018 from 0.7063.

Gold traded near three-month lows, falling to 1085.17 and oil traded between 43.58 and 44.66.

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