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    European Session – Euro tests 1.14, sterling down on negative inflation, Swedish crown hits 4-month high

    Sterling was one of the worst performing currencies today as it weakened into and through the UK inflation release with the headline CPI number entering negative territory at -0.1% year-on-year.

    Merger news only briefly caused the pound to spike but the announcement of an improved offer for SABMiller PLC from AB InBev failed to provide long lasting support and cable fell from a session high of 1.5386 to 1.5199. The decline accelerated after data showed UK CPI unexpectedly fell in September to -0.1% from 0.0% the prior month. Consensus estimates were for CPI to stay unchanged. The month-on-month rate also fell by 0.1%. The core rate, which excludes energy, food, alcohol and tobacco, was unchanged at 1.0% year-on-year, against expectations that it would pick up to 1.1%.

    The euro rallied against the softer pound, rising to a high of 0.7492, the highest level since February.

    The euro strengthened early against the dollar to a high of 1.1410 before steadying off. Upside momentum faded after data showed German investor morale plummeted in October as the diesel emissions scandal at German carmaker Volkswagen as well as weakness in emerging markets took their toll. The survey by ZEW showed the sentiment index fell to 1.9 points in October from 12.1 in September, far below the 6.0 reading expected.

    The Swedish crown hit a 4-month high as inflation beat forecasts. Swedish consumer prices rose 0.4% in September from August on a month-on-month basis. The dollar fell to a low of 8.0934 against the crown, the weakest since June.

    The dollar was under pressure against the yen, falling back below the key 120 yen level. The broadly weaker dollar fell to as low as 119.54 yen. The lack of risk appetite helped support the yen, especially after the Chinese trade data today which showed considerably weaker imports in September. St. Louis Fed President James Bullard’s comments helped the dollar bounce slightly. Speaking in Washington today, he reiterated the need for the Fed to raise interest rates soon as he believes the US economy warrants it.

    Wednesday’s Chinese CPI numbers now come into focus. US retail sales data later on Wednesday will also be key for the dollar/yen pair.

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