The Bank of Japan confirmed that policy was unchanged in its statement on Wednesday with the existing quantitative easing staying in place, but there was a marginally more hawkish tone from chief Kuroda which protected the yen from further selling. The latest Japanese industrial production data was slightly weaker than expected and there was a decline in the PMI index back below the 50 level for the first time in 16 months. The yen still found support at lower levels and USD/JPY dipped back to the 102.40 area in late Asia.
Positioning had a significant impact during the day with inevitable adjustments in holdings on the last trading day of the month and some element of window dressing which added to the choppy underlying conditions, especially with some markets closed on May 1st.
The Euro remained on the defensive in early Europe with a test of support below the 1.3800 level ahead of the Euro-zone inflation data release. The headline rate at 0.7% was slightly weaker than expected and pushed EUR/USD lower to the 1.3770 area. Support here held comfortably and the pair rallied quickly, especially with the core inflation rate in line with expectations at 1.0%.
Although underlying pressure on the ECB is continuing to build, markets assumed that the data was not bad enough to trigger immediate policy action, especially as growth indicators have been more favourable. In this environment, short positions were closed quickly as EUR/USD rallied back to the 1.3850 area.
US economic data triggered significant volatility during the New York session. There was an initial dollar boost from a stronger than expected ADP employment report at 220,000 for April with March’s data also revised higher. Gains were, however, more than reversed following a weaker than expected GDP growth of 0.1% for the first quarter.
The dollar came off its worst levels following a much stronger than expected reading for the Chicago PMI index at 63.0 for April from 55.9 previously which was the strongest reading for six months as orders rose strongly. EUR/USD was still able to hold above 1.3850 as USD/CHF again tested support below 0.8800.
Positioning then dominated ahead of the Federal Reserve statement later in the day. Month-end factors tended to boost Sterling following a strong April performance as speculative players also looked to take out longer-term resistance levels and GBP/USD moved to 2014 highs above 1.6850.