Overall yen sentiment remained weak with expectations that the Bank of Japan would eventually be forced to expand monetary policy more aggressively to compensate for any sales-tax increase. At this stage, the government is still aiming to increase the tax in October which will tend to keep the yen on the defensive. The latest Bank of Japan minutes continued to urge fiscal consolidation and there was a determination to keep bond yields down which would undermine yield support.
Risk appetite was generally firmer in Asia on Tuesday as Syria fears eased and the dollar held above 99.50. The US currency was able to make further headway In Europe and pushed convincingly above 100 with peak near 100.50 after reports that the Syrian government had agreed to international control of chemical weapons which would substantially lessen the risk of US military action.
There was also stronger than expected Chinese industrial production data which helped underpin global risk conditions. In this environment, the Australian dollar also gained fresh support as AUD/USD attacked the 0.93 resistance area.
A weaker than expected French industrial production reading did not have a significant Euro impact while political stresses were in limbo as markets waited for an Italian Senate ruling on whether Berlusconi would be banned from parliament which could trigger a government collapse. Currency moves were dominated by US expectations and risk conditions.
EUR/USD was unable to hold the 1.3280 area and drifted weaker to lows around 1.3230, but there was no significant test of support levels. The two relatively minor US data releases recorded a marginal decline in small-business optimism, but with a firm employment reading while there was a decline in the reported JOLTS job openings. Confidence in the dollar stayed weaker with the Euro making fresh headway due to underlying doubts surrounding Fed tapering intentions next week.
There was a further increase in the UK RICS house-price indicator to 40 in August from a revised 37 previously which was a six-year high for the index amid evidence of stronger mortgage demand and supply. Overall confidence in Sterling remained firm as expectations of stronger short-term growth continued to out-weigh the important longer-term reservations. EUR/GBP held relatively steady while GBP/USD again tested resistance above 1.57.