After initially holding steady against the yen on Wednesday, the dollar dipped sharply with lows around 97.25. The Japanese currency gained some support from concerns surrounding losses within the Chinese banking sector and bank-default rumours as risk appetite suddenly evaporated.
The Australian dollar was an important casualty of the deterioration in risk conditions. After moving higher following the higher than expected inflation data, AUD/USD hit resistance towards 0.9750 and reversed sharply to test support near 0.9600 in New York.
Underlying US dollar sentiment remained weak following Tuesday’s payroll report with markets expecting a further delay in bond tapering due to lingering growth concerns. Market talk was increasingly that tapering could be delayed until at least March 2014. There was further speculation that the government shutdown had damaged both the economy and the dollar’s underlying global status.
There were no significant Euro-zone data releases with markets on alert for any verbal intervention by the ECB. The Bank of Spain estimated that there was marginal GDP growth for the third quarter after over two years of contraction which provided some support.
EUR/USD hit resistance on approach to the 1.38 level, but a key feature was again the dollar’s inability to secure more than a limited recovery from recent losses as retail remained badly positioned. The Euro found support just below 1.3750 before staging another rally attempt with strong bidding support evident on only minor setbacks.
There were no major surprises in the Bank of England October minutes with unanimous votes to hold interest rates and the amount of quantitative easing steady. There was greater optimism surrounding the growth outlook with comments that unemployment was falling faster than expected. In this environment, there was no suggestion that further quantitative easing was required at present.
A stronger UK currency was seen as having a mixed impact. GBP/USD had already dipped lower ahead of the release with disappointment over another failure to move above the 1.6250 resistance area and selling against the Euro, but there was good support near 1.6100.
As expected, the Bank of Canada left interest rates on hold at 1.00% following the latest policy meeting. There was, however, a significant policy shift with the bank dropping its existing bias to tighten conditions. The bank cut the growth and inflation forecasts due to increased doubts surrounding domestic and international trends which harmed the Loonie. USD/CAD moved sharply higher to above 1.0380 following the decision.