Thursday’s Asian session was again devoid of significant action with marginal gains for commodity currencies as USD/CAD dipped towards 1.0700 and AUD/USD challenged resistance above 0.9400. The Euro overall drifted lower with no fundamental support on offer during the day.
Sterling was the main moved during the European session with the Bank of England releasing its latest financial stability report and latest recommendations. GBP/USD pushed sharply higher ahead of the report with stop loss buying triggered on a move above 1.7000.
The Bank of England announced fresh measures to curb an over-heated housing market including tighter limits on loan/income ratios. Markets overall were unconvinced that the measures would be sufficient to cool the sector and there was further speculation that higher interest rates would be required to control demand which put upward pressure on the UK currency. GBP/USD pushed to a peak near 1.7040 before edging lower again as the dollar regained ground while EUR/GBP retreated back below the key 0.8000 level.
There were no significant surprises in the latest batch of US data releases with jobless claims little changed at 312,000 in the latest week from a revised 314,000 previously. The personal income and spending estimates were slightly weaker than expected while the core PCE inflation reading was in line with the consensus at 0.2% to give an annual increase of 1.5%. There was some disappointment over the data and the dollar dipped marginally lower.
In contrast, there were relatively bullish comments from regional Fed President Bullard who stated that the economy looked pretty good and that the Fed was closer to achieving its goals than many people realised with inflation likely to move above 2% next year.
There were subsequent reports that the ECB might not have reached the lower bound of policy action until a negative deposit rate of 0.25% was imposed from -0.10% now. It would also take 6-9 month for the effectiveness of June’s batch of policy measures to be judged. In response, the Euro dipped lower again with EUR/USD dipping below 1.3600 to test the key 1.3580 support area.
The Euro was under selling pressure on the crosses and a sharp slide in equity markets early on Wall Street also had a significant currency-market impact. With a flow of funds into bonds, USD/JPY dipped to lows just below 101.50 as EUR/JPY tested 138.0.