FOREX ASIA UPDATE - USD

The US dollar fell sharply on Friday on the back of soft Q3 GDP, with EURUSD trading up to a high of 1.2751 from 1.2671, while USDJPY traded down to 117.13 from 118.53. Advance Q3 GDP rose by just 1.6%, well below market expectations of 2.6% annualized, while the core PCE deflator also rose by a less-than-expected 2.3%. Economists warned that the report was likely weaker than what the headline suggests.

In particular GDP was boosted by an unlikely surge in motor vehicle production. It's a heavy data week in the US, and in general we expect releases to be consistent with a further gradual slowing in activity, weakness in the housing market and muted price pressures.

Non-farm payrolls on Friday is the major focus, and our economists project 105k, below non only trend, but also consensus at 125k. The data should support our view that the Fed is on hold and will ultimately cut rates next year, but markets are likely to be cautious about pricing too much more easing risk just yet given Fed commentary continues to stress inflation risks.

With the global environment for carry trades remaining quite healthy, we think the USD will remain reasonably well supported this week even if data supports perceptions of slowing activity.

Looking ahead to today's session and Fed's Lacker speaks at 1330 GMT on the topic of "Monetary Policy Tactics and Strategy", while Fed's Moskow speaks at a conference on education and economic growth at 1415 GMT.