All eyes on the US

A slow start to the European trading hours will naturally move attention to US economic data. August's durable goods orders and new home sales figures are on tap. The first is likely to reveal 0.2% drop, a reasonable improvement against July's 7.4% drawdown. Home sales are seen rising 6.6% after recording a 13.4% decline in July, the worst result since mid-2010. Investors are expected to continue to interpret US news-flow in terms of its consequences for shaping Fed QE "taper" prospects. On this basis, weak outcomes that argue against a move to reduce asset purchases in the near term stand to weigh on the US dollar.

Back to the UK and both the sterling and the benchmark ten-year government bond yields have scaled over the past two months. These changes were built on a common fundamental drive: an improved rate outlook for the UK economy. The market has responded to the BoE's rejection of QE and more balanced view of the economy as reason to reverse a stimulus discount. However, in that shift, we have seen the market go further than just a rebalance to neutral. Monetary policy officials have lamented that the markets seem to be pricing in rate rises well before the central bank's forward guidance vow of 2016. Today's Financial Policy Committee meeting statement won't likely take up the speculative fight.

The Aussie dollar met modest downward pressure after the RBA said that modest credit growth presents a strategic challenge for local banks in its Financial Stability Review publication. The central bank added that conditions in the business sector continue to fall below trend averages. Taken together, these comments seemed to beckon further interest rate cuts. However, the report went on to caution against excess speculation – particularly in the housing market – against a backdrop of low borrowing costs. That seemed to suggest policymakers are in fact weary of easing further, meaning the report's negative implications for the Aussie are likely to be short-lived.