FX Market Summary 08-21-2013: Sterling maintains a firm tone

Emerging-market currencies found some respite during Asian trading on Wednesday, although the relief was only temporary as the Indian rupee dipped to fresh record lows during the European session. There were still important stresses surrounding more risk-dominated assets in general which provided some support to defensive currencies.

In this environment, risk appetite remained generally fragile and the dollar traded with a mixed tone. The US currency was able to make progress against the Australian dollar as AUD/USD dipped to test key support in the 0.9000 area. There was also a fresh move higher in USD/CAD to a peak just below 1.0450, the highest level since early August.

There were further concerns surrounding the situation at the Fukushima nuclear facility as the government issued a further warning over radioactive water leaks and this had some negative yen impact as USD/JPY was able to hold above the 97 area.

The US currency still found it very difficult to make significant headway against the European currencies. There was a retreat in EUR/USD from six-month highs recorded on Tuesday as the pair dipped to below 1.34, but there was still solid buying support on any significant retreats with the retail positioning still an important barrier to more substantial US currency gains.

The US economic data was stronger than expected with existing home sales rising to an annual rate of 5.39mn for July from a revised 5.06mn the previous month and this was the highest reading since November 2009. The overall market reaction was limited with markets in lock-down mode ahead of the important Federal Reserve minutes due later on Wednesday.

The UK data was also stronger than expected as the CBI industrial trends survey registered a reading of zero for August from -12 the previous month, the best reading for two years, which maintained positive sentiment towards the UK economy and Sterling. The government borrowing data was less favourable with a smaller than expected surplus of GBP1.3bn for the latest month, the weakest July reading for three years as spending rose sharply.

Overall Sterling maintained a firm tone with GBP/USD finding support near 1.5650 and again pushing to challenge key resistance in the 1.57 area. Sterling also recovered to near 0.8530 against the Euro.

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