The Bank of Japan held policy steady at the latest meeting which was in line with expectations and Bank chief Kuroda was more optimistic surrounding the outlook which tended to dampen expectations of further easing at the late-April meeting which also curbed yen selling. The Japanese seasonally adjusted current account remained in slight deficit for February which maintained underlying concerns surrounding the fundamentals.
In contrast, there was net selling of overseas bonds by Japanese funds which will tend to protect the balance of payments. There were doubts surrounding the Chinese economic outlook while a further slide in equity markets, notably for the tech sector, provided defensive yen support. USD/JPY initially retreated to the 102.75 area with the dollar struggling for wider support while AUD/USD tested fresh four-month highs.
The US currency remained generally on the defensive in early Europe and selling intensified during the European session. There was disappointment that the dollar had not been able to take further advantage from last week’s interim recovery which hampered sentiment.
As far as the Euro-zone is concerned, there was further disappointment that the ECB appeared to be moving away again from the possibility of near-term quantitative easing which underpinned the Euro. As has been the case on numerous occasions over the past few months, the price action left Euro shorts exposed and position adjustment helped trigger further gains to the 1.3800 area early in New York. USD/JPY maintained the heavily defensive tone with a slide towards key support near 102 before US equity indices crawled off their lows.
Sterling continued to draw support from the ability to hold support levels and the trend was subjected to sharp acceleration following the stronger than expected UK data. Industrial production increased by a stronger than expected 0.9% for February after being unchanged the previous month, bolstering confidence in the short term outlook. GBP/USD rallied sharply to an initial peak above 1.6700 and the move was sustained by general dollar vulnerability with a peak just above 1.6750.
In contrast to Sterling, the Canadian dollar was undermined by weaker than expected data. Housing starts fell to an annualised rate of 157,000 in the latest month from 191,000 previously while there was a sharp monthly decline in building permits. USD/CAD rallied to the 1.0940 area from lows below 1.0920 with dollar bulls still struggling for conviction later in the session.