With key data releases, central bank meetings and a slump in emerging-market currencies last week, markets were braced for volatile conditions at the start of June. The Euro initially maintained a solid tone on Monday, pushing above the 1.30 level, with EUR/USD peaking close to 1.3045.
The currency drew support from the latest PMI releases out of Europe with the final Euro-zone reading at 48.3 from a provisional 47.8. The Spanish manufacturing index moved to the highest level for 2 years at 48.1, although this was still below the benchmark 50 level which signals expansion.
Movement on the yen crosses continued to have an important market impact. The Nikkei index retreated by a further 3.7% during the Tokyo session which pushed the USD/JPY rate down to near the 100 level for the first time in 3 weeks and also put wider downward pressure on the US currency. Initially, sellers were unable to push the dollar below 100 and a technical correction also pulled EUR/USD back to the 1.30 level. The dollar was also boosted by comments from Regional Fed President Williams who repeated his suggestion that quantitative easing could be scaled back at the next FOMC policy meeting.
The dollar was subjected to renewed and relatively heavy selling pressure following the US data releases as volatility surged higher. The ISM manufacturing index dipped to below the 50 level for only the third time in the past four years and this was the weakest outcome since June 2009. Markets last week had been braced for a weak figure, but the much stronger than expected Chicago release on Friday had eased fears and also contributed to a much bigger reaction to the sub-50 national PMI reading. There was a sharp reversal in Fed tightening expectations with the data certainly under-cutting any hawkish arguments for now which also undermined the dollar.
USD/JPY broke below the 100 level, triggering stop-loss yen buying and pushing the pair to lows below 99.00. The dollar exhibited fresh vulnerability against all major pairs with EUR/USD testing resistance levels near 1.31 while AUD/USD moved above the important 0.97 resistance area.
Sterling had earlier received a boost from a stronger than expected PMI manufacturing release with the index rising to 51.3 from a revised 50.2 previously. This was a 14-month high for the index and maintained a positive currency tone with GBP/USD moving higher. Gains initially stalled in the 1.5280 region before a renewed push higher with a subsequent break of the 1.53 resistance area as wider dollar weakness took hold during US trading.