The general theme during Tuesday was an improvement in risk appetite which curbed demand for defensive assets. In this context, the Japanese currency was strongly correlated with geo-political stresses and yen weakness remained dependent on an easing of market tensions. Overnight, Russian President Putin announced an ending of military exercises near Ukraine which helped ease immediate fears over an escalation in the dispute.
Bank of Japan Governor Kuroda stated that there was still momentum for carry trades while Economy Minister Amari remarked that Japan was not out of deflation which had an impact in weakening the Japanese currency on expectations of further quantitative easing. USD/JPY was able to find strong support at lower levels given speculation over medium-term US gains and pushed higher with an initial move to the 101.80 area.
There were no surprises from the Reserve Bank of Australia with interest rates left on hold at 2.50%. Australian dollar buying support from an unchanged policy and an improvement in risk conditions was tempered by bank comments that the currency was still very strong in historic terms and AUD/USD was unable to attack the 0.90 level.
A better than expected Spanish unemployment release did not have a major impact, especially as the data has been very erratic over the past few months with uncertainty over labour-force trends. There was further speculation that the ECB could announce additional support measures at this week’s policy meeting which curbed Euro buying support.
The latest UK construction PMI index registered a slight decline from last month with a figure of 62.6 for February from the multi-year high of 64.6 the previous month. The data was broadly in line with the recent pattern and suggesting still very solid growth with the possibility that momentum is fading slightly. After finding support below 1.6650 and testing resistance above 1.67 ahead of the release, GBP/USD generally drifted lower with no further buying incentives.
EUR/USD was unable to make a serious attack on resistance levels and drifted lower into the New York session with the dollar gaining some support from a optimism surrounding the US economy. Ranges were narrow ahead of key event risks later this week on both sides of the Atlantic with EUR/USD consolidation near 1.3750. Weaker Swiss franc demand pushed USD/CHF to test resistance above 0.8850 as EUR/CHF moved above 1.2170.