FX Market Summary 07-23-2014: Profit Taking Hits Sterling

The dollar held a solid tone on Wednesday without being able to build on gains seen over the previous 24 hours while the Euro attempted a weak recovery from multi-month lows and Sterling corrected lower.

The latest Australian consumer inflation data was slightly stronger than expected with a 0.5% second-quarter increase pushing the annual rate to 3.0% from 2.9% previously. The data dampened any expectations of further rate cuts by the Reserve Bank which helped underpin the Australian dollar. AUD/USD had already gained support after moving higher in the US session on Tuesday and a fresh move above 0.9400 helped trigger stops and highs around 0.9450.

Minutes from the Bank of England July monetary policy meeting were anxiously anticipated as markets waited for further evidence on a possible rate-hike timetable.  Despite some speculation of a split vote, there was unanimous backing for interest rates to be left on hold at 0.50%.

There was evidence that spare capacity was being used at a faster than expected rate which bolstered the case for a rate increase. In contrast, there were increased concerns surrounding weak earnings growth and some tentative evidence that the economy was slowing. Underlying uncertainty tended to increase with signs of two clear camps emerging within the committee.

The minutes overall had a slightly dovish tinge which pushed Sterling weaker with a Euro move back above 0.79 enhancing the correction. GBP/USD dipped to lows near 1.7020 with later comments from Bank Governor Carney and a stronger CBI retail survey not having a major impact as some technical support below 1.7030 kicked in.

Underlying Euro sentiment remained weak, especially after the break of potentially key technical levels on Tuesday, but momentum for a further move was lacking at this stage. EUR/USD found support near 1.3450 with reports of option-related buying and potential Chinese central bank interest while recoveries hit resistance close to 1.3475.

Although USD/CAD dipped to lows just below 1.0710 following a mixed retail sales report, there was solid buying support on dips with a move back to the 1.0730 area.

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