NEW YORK ( BBH FX Strategy) -- The foreign exchange market saw some light profit-taking, which kept the dollar on a supportive footing. However, it remained relatively close to Thursday's lows following the broad move back into risky positions amid the eurozone rescue plan.Regional stock markets were mostly higher, but gains were limited after Thursday's outsized moves. The market nonetheless remains optimistic that China will invest in the European Financial Stability Facility, though it will come with conditions and reportedly depend on other countries' participation.
Today markets are likely to focus on U.S. personal income and spending data which are both expected to improve from last month. Indeed, Thursday activity figures suggested that Q3 was driven primarily by consumption which is likely to bode well for the start of Q4. The decent gain in September retail sales suggests in some part that spending show remain strong. The rises in employment, average earnings and hours worked last month suggest that personal income is likely to have increased from the previous month. Elsewhere, the Swiss October KOF leading indicator fell to just 0.80 from 1.21 in the previous month. Indeed, with Switzerland's currency one of the most overvalued in the G10. Barring its sizeable current account surplus and net international investment position, its economic fundamentals are among the worst in the G10. Its open economy has left it exposed to a slowdown in trade, leading to deterioration in it terms of trade as external growth has slowed. As such, its economic data continues to underperform expectations, highlighting the current weakness in the Swiss economy. As outlook for the U.S. economy has improved, there have been some notable changes to expectations for monetary policy in emerging markets countries. For example, expectations have been lowered for cuts in Mexico and Korea and official communication from the Brazilian central banks seems a bit less dovish than some had expected. More notably, Turkey made a U-turn toward tightening policy. Even though the bank has been very confusing, rates have more unambiguously higher. Further down the line, we expect countries with more solid fundamentals, such as Indonesia, to catch up and gradually begin to outperform.