The Bank of Japan left monetary policy on hold following the latest policy meeting, but the yen was unable to gain any significant support as USD/JPY tested resistance levels above 100 for the first time since late July. There was a greater tone of optimism surrounding the global growth outlook which curbed demand for the Japanese currency.
As expected, the ECB left interest rates on hold following the latest policy meeting, ensuring that the main focus would be on President Draghi’s press conference. Draghi remained generally cautious surrounding the economic outlook as he reinforced the message that recovery would come only very slowly while inflation would remain low.
There were also significant comments that the ECB would consider a cut in interest rates if there was an unjustified increase in market rates. There were also indications of significant splits within the council. EUR/USD had re-tested resistance levels above 1.32 following the rate decision, but Draghi’s comments pushed the Euro lower again despite a further increase in German bond yields.
The US ADP report was slightly weaker than expected with new private-sector jobs growth estimated at 176,000 from a revised 198,000 previously, although this still indicated solid underlying growth. The jobless claims data was stronger than expected with a decline to 323,000 in the latest week from 332,000 previously, maintaining underlying claims at five year lows. These two figures combined will increase optimism surrounding a robust payroll figure on Friday.
The ISM non-manufacturing index was much stronger than expected at 58.8 from 56.0 previously, the highest figure since March 2011 as orders rose strongly. There was also a big increase in the employment component which is another positive sign for the payroll data. Overall, there were strong expectations that the Fed would proceed with a September tapering which underpinned the dollar.
The combination of a firm dollar and dovish rhetoric from Draghi pushed EUR/USD to lows below 1.3120 later in the New York session as USD/CHF moved towards the 0.9450 area.
As expected, the Bank of England held interest rates at 0.50% following the latest policy meeting and the amount of quantitative easing was also unchanged at £375bn. There had been some speculation that the MPC would issue a statement following the meeting to reinforce its commitment to forward guidance, but there was no commentary from the bank. GBP/USD initially tested levels above 1.5650 before weakening to below 1.56, primarily due to a stronger US currency.