The dollar was unable to make any headway during the Asian session on Wednesday with USD/JPY capped well below the 102 level. Although there was some stabilisation in emerging-market sentiment and a tentative rally in stocks, there was little conviction in the moves.
Completing a mixed bag of surveys this week, the UK PMI services-sector report was slightly weaker than expected with a decline to 7-month lows of 58.3 for January from 58.8 previously, contrary to expectations of a small increase. Although still robust in comparison with historic trends, the data reinforced unease surrounding a potential peak in UK growth rates.
In very spiky trading, GBP/USD registered net losses with a retreat back through 1.63 and an eventual test of the key 1.6250 support area which held on two separate occasions.
The Euro-zone final PMI services-sector readings had a slight dampening impact on the Euro with a small downward revision from the flash estimate, although there was a further solid reading from Spain which limited selling pressures.
There was also a weaker than expected reading for Euro-zone retail sales with a 1.6% monthly decline for December. Although EUR/USD did dip weaker following the release, the pair was generally confined to narrow ranges with support on brief dips to below the 1.35 level.
Frustration over the failure to push lower triggered some short covering and EUR/USD also pushed higher to a peak just below 1.3550 ahead of the US ADP employment release. Markets were nervous over the potential for a weaker number, especially given the impact of adverse weather, and there were also concerns that a weak number would trigger fresh selling pressure on equity markets.
In the event, the ADP release was slightly weaker than expected at 175,000 for January from a revised 227,000 previously. There was some immediate relief that the data was not even worse, but overall risk sentiment deteriorated soon after the data and USD/JPY dipped lower with a test of support below the 101 level.
Equity futures managed to find support at lower levels and US yields rose which pushed USD/JPY back above 101 and EUR/USD also retreated from 1.3550. There was dollar support from a solid Markit PMI services report while Euro buying support was limited ahead of Thursday’s ECB policy meeting.