FX Market Summary 02-11-2014: Dollar Struggles On Yellen’s Debut

The Australian dollar moved higher in Asian trading on Tuesday, bolstered to some extent by stronger than expected data with a larger than expected increase in housing finance. AUD/USD pushed sharply higher with shorts again forced to cover positions and a break above the pivotal 0.90 level helped trigger further buying for the pair.

Liquidity was very thin, especially with Tokyo markets closed for a holiday, and the AUD/USD move higher also helped trigger a sharp move higher in EUR/USD as the dollar lost ground all round. The US currency dipped to two-week lows on a trade-weighted basis as EUR/USD moved above 1.3650 for a peak just above 1.3680.

There was a generally optimistic survey from the CBI which helped underpin confidence in the UK economy and there was also a stronger than expected reading for the latest BRC retail sales data which boosted optimism over a firm official sales reading later in the month. GBP/USD was initially blocked at the 1.6425 area and retreated to test support below 1.64 before finding fresh traction and pushing to a peak around the 1.6470 area during the European session.

Price action was generally subdued ahead of the New York open with tensions high ahead of Fed Chair Yellen’s testimony to Congress. The prepared text was broadly met market expectations with comments that the labour market is still fragile and that monetary policy will remain highly accommodative even after quantitative easing ends. Yellen did indicate that the pace of tapering would continue if the economy performed as expected. Markets overall sensed that there is a high barrier to halting the tapering process which provided some net dollar support.

EUR/USD retreated back below the 1.3650 level and GBP/USD retreated from highs as US bond yields moved higher. USD/JPY also moved higher initially, but was unable to hold above the 102.50 level and retreated after the initial flurry of buying interest.

EUR/USD found support below the 1.3650 level and moved back to challenge daily highs ahead of Yellen’s Q&A session. GBP/USD moved to fresh highs near 1.6480 as Asian sellers struggled to contain buying interest. Gold prices continued to move higher which helped cushion commodity currencies and also tended to undermine the dollar.

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