Major currencies struggled for direction for much of the day as uncertainty weighed on aggressive position taking. The latest Japanese capital account data registered record selling of foreign bonds by Japanese institutions in the latest week. The data illustrates that the budget deadlock is having an important impact and there will be the threat of a yen surge if the US did default.
For now, markets were still looking to take a more optimistic tone. Even with the threat of brinkmanship, this market trend reflects expectations that some form of deal will be secured and that any deal would weaken the yen on relief. In this environment, there was a reluctance to buy the yen and USD/JPY moved higher with a peak around 98.20.
The Fed minutes from September’s FOMC policy meeting were broadly in line with expectations with confirmation that the decision not to taper purchases was a very close call. Some members were concerned over recent economic releases and there were also concerns that longer-term yields could increase if tapering was sanctioned. There were clear divisions between voters and non-voters with the latter camp much keener to start the tapering process and frustrated at the outcome.
EUR/USD found support below 1.35 with both attempted drives lower finding support above key support around 1.3470. This helped trigger a limited recovery in the pair with a peak just below 1.3550, although there was still important selling interest at higher levels.
The US initial jobless claims data was sharply higher than expected at 374,000 in the latest week, an increase of 66,000 from the previous week. There were distortions from the continuing impact of California’s computer-system switch and there was also some impact from the Federal government shutdown which accounted for around 15,000 claims over the week.
The economic data in general and jobless claims in particular will inevitably be distorted for the next few weeks at least which will dilute its impact in assessing economic trends and tend to lessen the market impact even with intermittent spikes.
There was no surprise from the Bank of England with interest rates left on hold at 0.50% and quantitative easing also left at £375bn. There was no statement following the decision which dampened any immediate market reaction with Sterling ticking marginally higher following the announcement.
The UK currency also attempted to recoup some ground following the sharp losses seen on Wednesday. EUR/GBP hit resistance around 0.8490 while GBP/USD was unconvincing with rallies failing to reach the 1.6000 level.