The dollar was unable to make any headway during the Asian session on Tuesday and maintained a vulnerable tone with Tokyo markets again closed for a holiday.
As expected, the Reserve Bank of Australia left interest rates on hold at 2.50% following the latest policy meeting with slightly greater optimism surrounding the domestic outlook. AUD/USD briefly popped above the 0.9300 level before retreating back to 0.9270. USD/JPY was unable to regain the 102.20 level and consolidated in a narrow range.
The dollar’s inability to make upward progress over the past few sessions was an important warning sign for bulls and the currency was subjected to heavy selling in Europe.
The Euro-zone PMI data as a whole was close to expectations with the strongest Spanish services-sector performance for seven years helping to maintain underlying optimism, especially as there was also a sharp decline in registered unemployed. EUR/USD easily found support above 1.3850 and a break above 1.3900 helped trigger a sharp move to the 1.3950 area early in the New York session.
Dollar selling overall gained momentum with the currency struggling against all the majors. USD/JPY dipped to test support below 101.80 while AUD/USD spiked to highs above 0.9350.
The latest UK services-sector PMI release was stronger than expected at 58.7 for April from 57.6 previously which broke a run of five consecutive monthly declines. The data reinforced optimism surrounding the growth outlook and also increased pressure for monetary tightening from the Bank of England. GBP/USD had already gained belief from the ability to hold 1.6850 support and immediately spiked above the 1.69 level after the PMI release. The pair was able to sustain momentum and continued to push higher with a peak just above 1.6990 as short-term players targeted option barriers and stops in the key 1.70 area.
The US economic data releases failed to have any major impact with the trade deficit at US$40.4bn from a revised US$41.9bn previously while consumer optimism retreated according to the latest IBD data.
The dollar was unable to make any significant recovery during the US session as EUR/USD held above 1.3900. There were further US losses against commodity currencies with AUD/USD moving to a peak above 0.9360 while USD/CAD dipped sharply to lows below the 1.09 level for the first time in close to four weeks following a solid PMI release.