The USD was the main beneficiary of this morning's activity.  Short-covering ahead of this week's FOMC meeting and a fall in equity indices combined to support the USD.   There is widespread awareness in the equity market of speculation that prices may be due a correction.  Nervousness may increase in the approach to the US earnings season which would allow the USD additional support.  Sterling is trading off its worst levels vs both the USD and the EUR but it remains under pressure with its weak fundamental outlook soured further by speculation that the Bank could take further simulative monetary policy initiatives this autumn.  UK economic data this morning was confined to the Rightmove house price survey which registered a rise +0.6% m/m consistent with increased stability in the sector. 

The closure of Japanese and other S.E Asian markets for a holiday ensured a quiet start to the London session, though the theme of USD buying was evident from the start.  Speculation that the FOMC may this week vote to withdraw monetary stimulus started to do the rounds at the end of last week and, with economic data continuing to improve, has been given sufficient credence to feed USD demand this morning.  This week, the US government is due to sell a record USD112 bln of 2,5 and 7 yr notes.  The USD would be vulnerable on signs of dropping support for US government debt particularly from overseas buyers.  However, demand for treasuries has been strong this year suggesting that the USD is not immediately vulnerable on this front. 

In view of speculation that the FOMC may be ready to plan its exit strategy, fear that the BoE may further reduce the rate on commercial banks' reserves at the Bank or increase the value of QE leaves sterling particularly vulnerable.  Cable fell as far as 1.6142 this morning before finding some support.  The GBP/USD1.6110 level is key technical support.  EUR/GBP rallied as far as 0.9069 before falling back. 

US economic data this afternoon is confined to Aug leading indicators.