After being subjected to significant selling pressure during Wednesday, the dollar did manage to stabilise following the Federal Reserve statement which was broadly in line with expectations, but it was unable to make any significant headway.
A further US$10bn tapering of bond purchases was announced to US$45bn per month and the Fed was more optimistic surrounding the economic outlook with notable confidence in consumer spending. Although the central bank still expects that tapering will continue over the next few meetings, there was still a commitment to keeping interest rates at very low levels even after quantitative easing has been completed. This stance limited dollar buying as it continued to trade near three-week lows.
Asian trading conditions were generally lacklustre with the Tokyo Golden Week holidays continuing to stifle activity. Trading conditions in Europe were also relatively thin with many markets closed for the Labour Day holidays.
In this context, the UK data was even more of a market focus during European trading and there was a strong start as Nationwide recorded an annual increase in house prices of over 10% for the first time in over seven years. The manufacturing PMI index was also stronger than expected with an increase to 57.3 for April from a revised 55.8, the highest reading for seven months.
Although credit data was also strong, other releases were less favourable with declines in mortgage approvals and money supply. The immediate market reaction was driven by the PMI number and GBP/USD spiked higher once again with a break to fresh four-year highs above 1.69 which potentially put the key 1.70 level in range.
The Euro maintained a robust tone and EUR/USD looked to challenge resistance above the 1.3880 area with markets increasingly looking at the 1.40 level as a key upside target.
The US jobless claims data was weaker than expected with an increase in claims to 344,000 in the latest week from a revised 330,000 previously. The personal spending data was, however, higher than expected and the dollar was more resilient than after the GDP data on Wednesday.
The US ISM manufacturing index moved higher to 54.9 from 53.7 which was marginally above expectations and helped maintain underlying confidence in the outlook. The currency impact was measured as bond prices were broadly resilient as yields tended to ease slightly. EUR/USD resisted any significant selling pressure and held comfortably above 1.3850. GBP/USD was subjected to mild profit taking and a dip back below 1.6900 as USD/JPY was unable to gain any traction and trapped below 102.50.