The dollar continued to gain some respite from the stronger than expected US data releases seen on Thursday, especially with a robust reading for the Philadelphia Fed index which is seen as an important underlying indicator. Underlying US confidence remained weaker following this week’s Federal Reserve meeting with positive economic data having less of a supportive impact given that strong PMI readings for September did not lead to any reduction in quantitative easing.
With no major US data releases on Friday, the main focus was on Fed speakers. Regional President Bullard continued to press his case for the Fed to be on alert for inflation being too low as he considers failure to loosen policy when inflation is below target, equally as damaging as a failure to tighten policy when inflation is too high.
As far as the latest Fed decision is concerned, Bullard stated that it was a close call between no tapering and a small tapering of US$10bn and that the overall difference between the two was slight. He also suggested that a tapering decision could be taken at the October FOMC meeting and the Fed could announce a press conference if necessary.
The comments did have some impact in underpinning the dollar, although position adjustment ahead of the weekend and a technical correction from over-sold conditions were also important factors. There was also caution given speculation that Yellen could be named as the next Fed Chair within the next few days.
EUR/USD was unable to break above the 1.3550 level and retreated to test support near 1.3500 during the New York session. The yen remained generally on the defensive as USD/JPY pushed to re-test resistance levels above 99.50.
The latest UK borrowing data was broadly in line with expectations with an overall borrowing requirement of £13.2bn for August from £14.4bn the previous year. The data overall suggested that the underlying deficit reduction remained at a very slow pace and vulnerable to any fresh slowdown in the economy.
The release did not trigger a major Sterling reaction with profit taking and position adjustment key factors ahead of the weekend. There was underlying evidence of GBP/USD selling above the 1.6000 area and the pair dipped to test support in this region early in the US session.