Volatility eased slightly during Wednesday, although uncertainty was still a key feature as markets debated the outlook for Fed policy and the global growth outlook. These twin concerns triggered renewed instability in bond markets and also was a significant factor unsettling currency markets.
The dollar looked to regain some poise against the yen during Asian trading following very high volatility and steep net losses over the previous 24 hours. A recovery in the Nikkei index helped the dollar gain traction initially and USD/JPY pushed to highs in the 97 area.
Bulls were unable to push the US currency above this key technical level and it drifted weaker in Europe with fresh selling pressure towards 95.50 during New York trading ahead of critical support near 95. The dollar was hampered by a retreat in yields while the yen gained renewed support as equity markets were subjected to wider selling pressure.
Major currencies struggled for direction during the European session with little in the way of fresh incentives and no major data releases. The German Constitutional Court continued to hear testimony on the ECB’s OMT programme, but arguments added little to Tuesday’s evidence and did not cause any major FX reaction. In this environment, markets focussed to a large extent on technical levels with an attempt to push the EUR/USD above near-term resistance levels above 1.33.
After an initial failure to make fresh highs, there was only a limited Euro retreat and it pushed higher again in New York as the dollar was subjected to wider selling pressure and a test of EUR/USD resistance near 1.3340. The US currency is still being hampered by the existing weight of positions and remains susceptible to an unwinding of aggressive long positions.
The latest UK economic data again had a positive tone which helped underpin Sterling. There was an 8,600 decline in the claimant count for May following a revised 11,800 decline the previous month. This was the lowest rate for two years as the ILO unemployment rate held at 7.8%. There was also a limited recovery in the rate of earnings growth to 1.3% from a revised 0.6% previously which helped ease concerns surrounding consumer spending although the data still suggested an important squeeze on purchasing power. Markets overall continued to scale back expectations of a more aggressive Bank of England policy. GBP/USD pushed to four-month highs in the 1.5680 area.