The dollar was able to draw some support from the Federal Reserve minutes and maintained a generally firm tone over the past 24 hours. The FOMC minutes contained a significant amount of cautious rhetoric and there was a reluctance to make any definite calls surrounding the bond purchasing programme. Nevertheless, the market’s net interpretation was that a tapering was still likely to occur in September.
US Treasury bond yields continued to increase with the benchmark 10-year yield moving above the 2.90% level for a fresh two-year high which provided important dollar support as emerging currencies also remained under pressure with the Indian rupee at fresh record lows.
There was stronger than expected Chinese PMI data which helped underpin risk conditions and USD/JPY was able to push comfortably above the 98 level while AUD/USD also found support below the 0.8950 level.
The Euro-zone PMI data was generally stronger than expected with flash manufacturing index rising to 51.3 from 50.3 previously which was a fresh two-year high while the services-sector index also moved above the 50 level for the first time since early 2012. There was some disappointment surrounding the French data which recorded renewed deterioration and took some of the gloss off the data.
The US releases were broadly in line with expectations as jobless claims increased to 336,000 in the latest reporting week from 323,000 previously and holding close to five-year lows. There was also a further small improvement in the PMI manufacturing index to 53.9 from 53.7 previously. The data did not discourage expectations of a Fed move and was constructive for the dollar.
EUR/USD lost support in the 1.3330 area and dipped to test support close to 1.3300 as the dollar’s trade-weighted index pushed above the 200-day moving average. The Euro did find support at lower levels with the dollar coming off its best levels against most major pairs.
Sterling was undermined by the failure to push above a key technical resistance level around 1.57 against the dollar. The currency was also undermined by comments from Bank of England MPC member Weale who stated that there were circumstances in which he would support further quantitative easing. The comments were potentially significant given that he is a more hawkish member of the committee and there were expectations of efforts to talk-down bond yields. In this environment, GBP/USD weakened to lows below 1.5580 while EUR/GBP moved back above 0.8550.