Gold has maintained its bull run this morning heading through the 1047.00 level in European hours.  It is a tenuous link to consider yesterday's rate hike by the RBA as a warning of excessive inflation in the longer run.  Since the issue of QE was first placed on the table by the Fed, the BoE and others there have been fears that inflation would raise its ugly head in a 2-3 year view.  However, as the months have drawn on inflation data have not produced any of the proverbial rods for the backs of the central banks.  The Bloomberg survey suggests US CPI is seen at a moderate 1.9% y/y at the end of 2011, up from an expected -0.5% y/y this year.  UK inflation CPI has been fairly sticky on the downside but at 1.6% y/y it is comfortably below the BoE's 2% target.  Given that the UK unemployment and savings rates are rising and both major political parties are talking about spending cuts next year it is difficult to imagine a quick return to a bubble economy.  Coincidentally signs of returning health to the banking system and the global economy should be offsetting safe haven flows into gold.  While the fundamentals behind the gold rally may not stack up, technical indicators remain more supportive with this week's break higher on the daily chart pointing to the potential of an aggressive move higher.  The 'inflationary' theme has supported the AUD, NZD and CAD 'commodities' currencies this morning.  The USD/CAD, however, has met with solid support at 1.0530.

Better than expected UK Nationwide consumer confidence data helped support the pound in earlier European hours.  However, this data may have seen a temporary boost by the UK's version of cash for clunkers.  Yesterday's weak UK production data and the implication that there may have been no growth in Q3 in the UK economy have soured the tone for the pound.  Tomorrow, the key focus will be the BoE's MPC meeting.  While no change in policy is expected this week, the poor IP data have served as a reminder that the potential for more QE remains on the table for Nov and this is set to continue weighing on sterling.

The USD has failed to hold the gains made vs the EUR in Asian hours.  A UK press report this morning has furthered the theme of the USD gradually losing its domination.  The report suggests that China's decision last month to sell its first sovereign bonds in CNY to foreigners was to prepare the ground for the CNY to become a fully fledged global currency and was thus the tolling of the bell for the dollar.  EUR/USD is holding close to last night's close. 

JPY buying at the London open was fairly broad based with the USD and the EUR being particularly hard hit.  The gains followed the WSJ story citing Finance Minister Fujii as referring to the strength of the JPY as ''acceptable''.  However, Fujii's remarks on the wires this morning displayed less conviction.  He commented that he was quietly watching currency moves and that Japan may act if yen moves are disorderly.  USD/JPY found buyers at 88.11 following these remarks.

This afternoon US consumer credit and MBA mortgage applications data are due.