Will a Snapback in Philly Fed take the EUR/USD Through 1.25? (page 2 of 2)

British Pound

Weaker labor market data has pushed the British pound lower despite moderately hawkish minutes from the Bank of England's most recent monetary policy meeting. According to the minutes, the two newest members of the central bank voted against keeping rates unchanged this month and instead favored a more immediate increase.

After hearing hawkish comments from BoE Governor King not too long ago, there are many traders positioning for another quarter point rate hike to 5 percent over the next few months. However, before getting too excited, the BoE pays very close attention to wage growth. The drop in average earning in the month of August along with some slack in the labor market may prompt the central bank to take a more wait and see approach by forgoing a November rate hike.

Traders are still very sensitive at the moment as UK data tends to follow the trend of one step forward, two steps back. We are expecting retail sales and some lending data tomorrow. Should the numbers disappoint, we could see the British pound pullback further.

Japanese Yen

It appears that Russia's plans to diversify their reserves to yen was not enough to offset the downside risks that the yen faces at the moment as well as the high carry payments traders would have to pay if they were short yen for a long period of time. Overnight, the yen lost further ground after a Bank of Japan spokesman refuted speculation that the central bank is monitoring carry trades, namely the massive amount of short yen positions that have been built in the markets. If they are not watching it, it means that they are not too concerned about it at the moment.

Meanwhile, a number of official government sources from around the world have reported that North Korea plans on carrying out another nuclear test which could cause another round of uncertainty in the Asian region. With sanctions not having much of an effect, Japan may be forced to look for more aggressive measures. Finally, after an emergency meeting, OPEC has announced plans to cut oil production by 1.0 million barrels per day. Oil prices have not reacted much, but the Canadian dollar and Japanese Yen have.