The Chinese yuan retreated to fresh 18-month lows on Wednesday which tended to weaken the yen on valuation grounds, but also curbed risk appetite which limited any selling pressure and USD/JPY was blocked in the 102.00 region.
Euro-zone data releases provided no currency support with monetary aggregates again weaker than expected. Money supply growth was held to 0.8% in the year to April from 1.0% the previous month and this was the slowest annual rate since the third quarter of 2010. Private lending also continued to contract on an annual basis for the 24th consecutive month. The data will reinforce concerns surrounding growth prospects given the lack of monetary fuel and also increase pressure for additional ECB policy action.
In wide-ranging comments, bank member Mersch continued to indicate that action was being contemplated for the June meeting. Significantly, he also stated that any cut in the re-finance rate would also be likely to trigger cuts in the other main reference rates which makes negative deposit rates very likely.
There was a much weaker than expected German labour-market report as unemployment surprisingly increased by 24,000 in the latest month while there was a decline in monthly French consumer spending. EUR/USD was unable to gain any traction and negative European data trends put the pair under fresh selling pressure with a slide to test support in the 1.3600 region with a test of support below as the dollar tested eight-week highs.
There was a fresh spike in volatility early in the US session as bond markets moved sharply. US benchmark 10-year yields dipped below the 2.47% area registered earlier in the month for fresh seven-month lows. USD/JPY had already been hampered by an inability to hold above 102.0 and retreated sharply to lows below 101.70 as yield spreads compressed.
The dollar briefly declined sharply against the Euro before regaining strong support as the Euro was subjected to fresh selling with markets also eyeing a spike in wider asset-price volatility. A break below the 1.3600 barrier triggered stops as USD/CHF moved close to the pivotal 0.9000 level.
Sterling remained under pressure during the day with no support from a weaker than expected CBI retail sales report while technical factors also remained negative following the inability to break resistance yesterday. A break below the 1.6730 important medium-term support area pushed GBP/USD to six-week lows just below 1.6700.