The dollar was unable to make any headway during Friday and selling pressure on the US unit gradually gathered pace with some expectations that a limited technical recovery following sharp losses last week and been completed. The dollar was also weighed down by strength in the Swiss franc as USD/CHF plunged to test 2013 lows near 0.9020 as EUR/CHF dipped to lows below 1.2250.
Japanese Finance Minister Aso again downplayed the possibility of a corporate tax cut which curbed any yen selling and USD/JPY slipped to lows in the 98.20 area after again being rejected above 99.0.
Chicago Fed President Evans stated that Fed tapering of bond purchases could take place in October or December, while a delay until 2014 was also possible. He expressed further concerns surrounding the US labour-market outlook and the overall dovish tone unsettled the dollar.
The US personal spending and income data were broadly in line with expectations and a higher than expected core PCE inflation reading of 0.2% did not have a significant positive impact on yields or the dollar. The US currency also lost traction as the final University of Michigan consumer confidence index was slightly weaker than expected.
Position adjustment was also an important factor ahead of the weekend and there was a reluctance to take on additional long dollar positions given uncertainty surrounding budget and debt-limit negotiations which will have to continue over the weekend ahead of the October 1st deadline for a budget deal.
There were further concerns surrounding the political situation in Italy as the coalition government remained close to collapse and there were some rumours of a credit-rating downgrade. The Euro, however, remained resilient and after breaking above resistance in the 1.3520 area, there were further gains to a peak around 1.3560 as it looked to take out September post-FOMC highs.
After surviving a test of support during Thursday, Sterling pushed sharply higher late in the Asian session on Friday following comments from the Bank of England Governor Carney. In a newspaper interview, Carney stated that he didn’t see a case for more quantitative easing and that the bank will only embark on a fresh round of bond purchases if the economy falters.
Carney expected the economic recovery to be sustained and GBP/USD immediately spiked higher to the 1.6130 area before being subjected to profit taking. Sterling also gained support from a reported 0.9% increase in house prices for September by the Nationwide.