There may have been little reaction from the USD to the initial reading of the FOMC statement but the buying pressures stepped up in Asia knocking EUR/USD to an overnight low of 1.4374.  Consolidation followed the London open but pressure on the EUR re-emerged pushing it closer towards the 1.4350 level.  The break below the EUR/USD1.4500 level appeared to trigger a rush into USD longs in Asian hours.  Sterling, the CHF, AUD and the NZD all fell heavily vs the USD during Asian hours.  The upwards trend in USD/JPY, however, reversed aggressively in early London hours despite comments from Deputy PM Kan that a weaker JPY is favourable.  

Yesterday evening's news that S&P has cut Greece's long-term sovereign rating to BBB+ has added to the downside pressure on the EUR.  The Greek government has launched a charm offensive stressing that it intends to cut its 2010 budget deficit by 4%, half from spending cuts and half from revenue increases.  The market, however, remains sceptical on its ability to implement reform given accusations of widespread corruption in the system.  While there are no realistic expectations that the deficit issues facing Greece (and Ireland, Spain and Portugal) will lead to a breakdown of EMU, the problems do highlight that an inflexible and strong exchange rate can be a burden in times of stress.  Talk that stronger countries will bailout weaker EMU partners rather than increase the strains on the system also highlights the risks that failure to follow through with structural reform will again be papered over.  Given there is a high risk of more bad budget news from Portugal, Spain, Iceland and the Baltics, this issue could undermine the EUR for months to come. 

Sterling took a tumble this morning on the back of a shockingly poor UK Nov retail sales outcome.  Despite expectations that retail sales would register a healthy +0.5% m/m upturn, sales instead contracted by -0.3% m/m on the back of weak clothing and department store sales.  In spite of yesterday's news that 53K jobs were added in the 3 months to Oct, fear of unemployment is clearly still a constraint on household spending plans.  Cable, already pushed lower by broad based USD buying overnight, has hits a low of USD1.6117 this morning.  Tomorrow's UK PSNCR data are likely to be a reminder of the appalling state of UK government finances.  These numbers could ensure that the pound remains on the back foot near-term and increase the potential for cable to fall back towards 1.6000. 

This afternoon, Canadian CPI, US initial claims, leading indicators and Philly Fed are due.