There was further weakness in the Chinese yuan on Tuesday with the spot rate moving lower than the official mid-rate for the first time in close to 18 months which maintained a cautious attitude towards both the Chinese economy and overall risk. USD/JPY was unable to make any challenge on resistance levels above 102.60, edging lower into European trading.
EUR/USD continued to derive some technical support from the ability to hold 1.37 support on Monday and looked to probe resistance levels above 1.3750 without making any great impression as narrow ranges prevailed. There was caution surrounding political stresses in Ukraine and Turkey while the underlying ECB policy debate continued.
There was a 13.4% annual increase in the Case-Shiller US house-price index and a 0.8% monthly increase in the latest monthly survey which provided some underlying confidence in the housing sector.
Although the headline consumer confidence reading was light of expectations at 78.1 from a revised 79.4 previously, there was an increase in the current situation component to a six-year high which helped underpin overall economic sentiment. EUR/USD moved higher immediately after the release, but was unable to break above 1.3770. The pair then moved sharply lower and dipped below 1.3725 within 30 minutes of the release as USD/CHF moved back towards the 0.89 level.
A small decline in US bond yields and a more cautious tone surrounding risk pushed USD/JPY to the 102.0 level before a very tentative rally as the yen attracted support on the European crosses.
The latest UK economic data was stronger than expected with a CBI retail sales survey outcome of +37 for February from +14 previously and companies were optimistic surrounding March’s outlook. There were mixed comments from Bank of England MPC member McCafferty in an interview with Reuters. He did remark that an early tightening in policy would have to be considered if inflationary pressures increased and this was taken as slightly hawkish overall which pushed Sterling higher. GBP/USD challenged the 1.67 resistance area with a peak just above 1.6720.
There had been expectations of further erratic trading around the London afternoon fix and there was very choppy Sterling trading ahead of the fixing as GBP/USD retreated to test support below 1.6650.