There was little evidence of fresh direction during the Asian session on Wednesday with USD/JPY holding above the 102.00 level after the inflation-linked boost seen on Tuesday while EUR/USD suffered paralysis near 1.3550.
The seasonally-adjusted Japanese trade deficit narrowed slightly to JPY0.86trn for May from JPY0.88trn previously with an decline in both exports and imports. A drop in exports will maintain concerns surrounding growth prospects and there will be concerns surrounding the impact of rising energy imports, both factors which will tend to be yen negative over the medium term.
The Bank of England MPC minutes were broadly in line with expectations following Carney’s comments last week with unanimous votes for interest rates and quantitative easing to be left on hold. The minutes expressed surprise that markets had not priced in a greater probability of rate hikes in 2014 and several members of the committee stated that the debate over interest rates was becoming more balanced. There was uncertainty surrounding the amount of spare capacity in the economy and the MPC also pointed to a moderation in inflation and effectively stated that rates would not need to increase if inflation pressures stayed low.
GBP/USD dipped and then spiked higher in immediate reaction to the headlines. After the rate briefly touched 1.7000, there was more sustained selling pressure given that hawkish elements had already been priced in. GBP/USD dipped below 1.6940 as EUR/GBP also looked to regain the 0.8000 level.
Thereafter, markets were generally locked in narrow ranges ahead of the key Federal Reserve policy statement and Yellen press conference later in the day. EUR/USD was able to find support above the 1.3530 area and moved towards the 1.3580 resistance area early in the US session. Under the weight of position adjustment, the dollar overall was unable to gain further traction despite some expectations of hawkish elements to the Fed statement. USD/JPY edged back towards 102.00 while USD/CHF dipped to the 0.8970 area.