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After a good performance last week by the USD the market was looking to see if the fight back could be sustained. From looking at the markets this morning then the answer is no; EUR/USD is again pushing towards 1.50 and GBP/USD has recovered from 1.64 levels back to 1.66. Influence on the USD has arisen from Federal reserve Governor Bullard who recently made interesting comments on Fed policy. He said that it will be difficult for the Fed to hike interest rates if the jobless data continues to worsen or look fragile and also tellingly that the Fed should keep alive its asset purchasing programmes beyond the first quarter of 2010 to give policy makers flexibility. This is somewhat akin to the strategy of the BoE and the comments dampen the hopes of rate hikes and exit strategies from unconventional monetary policy measures and thus weakening the USD. Although the comments are not yet official strategy, they still lend an insight to potential Fed policy. We will learn more in the Feds minutes on Tuesday.

An interesting article in Bloomberg notes that the most accurate dollar forecasters predict a further slide in the USD and to continue even if the US look to hike interest rates. Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 7.1 percent versus the euro.

Sterling having retreated at the end of last week still looks a little nervous; although it has made gains against the USD, this is more in line with broad USD weakness. There is not too much in the form of data this week; Wednesdays GDP report is the big focus for sterling and the latest release will hopefully upwardly revise the third quarter figures. Data today from the Eurozone has confirmed that November manufacturing PMI has come in at 51.0, up from 50.7 in October and slightly lower than forecast. This has tempered the euros advance but has not weakened the euro.

You can expect thin trading and volatility in the week ahead; today we have a holiday in Japan and on Thursday we have Thanksgiving.

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