The dollar extended gains in Europe as markets were sensitive to the hawkish undertones within yesterday's FOMC minues, though this was widely expected and there was a range of opinion. Nevertheless, this added traction to the dollar, which had already rallied amid sharp losses in gold. Eurozone PMI data weakness compounded the heaviness in commodities in Europe and forced EUR sharply lower from 1.3280 to 1.3170, which was reinforced by yesterday's bearish outside day on the daily chart. GBP rebounded after Cable posted new trend lows under 1.5150 in Asia and it reclaimed 1.5200. The steady tone was reinforced over the European morning after better than expected U.K. government borrowing data and the CBI industrial trends survey. Both debt auctions from Spain and France saw good demand, though the focus was on the macro picture.

[EUR, USD]
EUR-USD fell sharply after weaker than expected February manufacturing PMI data from France and Germany. EUR-USD fell from 1.3260 through 1.3200 and downside risk is likely to increase as market participants favour safety ahead of the weekend Italian election, which represents a risk for the eurozone. There should also be an element of caution ahead of tomorrow's LTRO repayment, where banks have the opportunity to repay the second of ECB's long term tender, though the results could be a bit comprised due the proximity of the weekend Italian election.

[USD, JPY]
USD-JPY experienced choppy rangebound trade, with dollar strength absorbing yen-cross weakness. It continued to meet good offers ahead of 94.00 in Asia, but there has been no significant downside progress as funds hold on to hope of more BoJ policy stimulus. The issue of BoJ Governor nomination has seen a more broadly balanced yen tone, though all the action went through the crosses today as the dollar legs experienced a meltdown due to the risk-off moves and the FOMC minutes. In Europe, there was more pronounced downside pressure due to EUR-JPY selling after eurozone data and it broke to 122.70 compared with 124.50 in early Asia. GBP-JPY extended to 141.35 in Asia and then moved higher on short covering in Europe, while AUD-JPY slumped from 96.40 to 95.35.

[GBP, USD]
GBP is up on short covering after it plunged to new trend lows overnight following yesterday's dovish tilt in the BoE minutes. Sterling has already been suffering on the perceived "Carney short" amid expectations that policy will remain dovish for longer under the new governor when he starts his role in July. The FT said Soros, Tudor, Caxton and Moore are all shorting the pound and see similarities with the U.K's predicament to that of Japan, though clearly policy communication is vastly differently. One unnamed leading manager said the weakening of the pound could be dramatic this year. Thin trade exacerbated the Cable move from 1.5280 through 1.5200 after the Fed minutes and also in late Asia from 1.5210 to 1.5132 lows. Since then U.S. funds have been buying back Cable and it is now over 1.5200, while we have been tipped for the last two sessions of good oil importer demand and GBP repatriation by large insurers.

[USD, CHF]
EUR-CHF was weighed by eurozone risks, though Swiss trade data underscored expectations that the economy is on the mend. EUR-CHF was impacted by broader based EUR weakness, which overwhelmed the bid in USD-CHF and drove the cross from 1.2330 to 1.2285. A better than expected Swiss trade surplus highlighted not only the importance of the eurozone to Switzerland, but also U.S. and Asia, as watch exports surged in these regions. However, the cross outlook will be wholey dependent on the eurozone, which will determine SNB policy ahead. The SNB has maintained in the last two weeks that the peg is here to stay for the foreseeable future while eurozone uncertainty and deflationary forces are at play. Intra-day, EUR-CHF buyers are likely into near-term lows at 1.2275-80 and 1.2250. Movement over 1.2350 represents the top of the recent range.

[USD, CAD]
USD-CAD continued to climb, moving over 1.0200 to fresh trend highs in Europe. There was mild selling in late Asia, which briefly kept 1.0200 intact, but the risk off tone and soft PMI data out of Europe fueled buying interest. Risk will remain is on the upside following yesterday's sharp sell off in commodities, which spilled into the commodity bloc currencies. The technical backdrop is also with the USD-CAD upside after it rallied out of 1.0050 last week. Bids are now noted from 1.0150-60 and then into 1.0140.