Bank of Japan member Iwata reiterated the bank’s commitment to an expansionary monetary policy on Monday which reinforced negative longer-term sentiment towards the yen. USD/JPY moved above 97.70 at the Asian open, but failed to generate any additional traction.
With the Federal Reserve meeting this week, there were strong expectations that bond tapering would be left on hold again which limited any support for the US currency. Markets generally were relatively dismissive of the potential FOMC impact, although this could be dangerous as volatility is still liable to spike higher.
Monday’s European trading got off to a lacklustre start with low volumes and narrow ranges compounded by the impact of below-normal activity in London due to adverse weather and transport disruption.
Although EUR/USD initially held above 1.38 and looked to test last week’s highs, the pair lacked momentum with dealers wary of a sharp correction. The latest CFTC positioning data maintained a substantial speculative Euro position, although this was taken at the beginning of October which lessened any potential impact.
There were also concerns surrounding the potential for a more aggressive European stance to combat Euro appreciation, especially with very weak Spanish housing data reinforcing underlying concerns surrounding peripheral economic prospects.
The US economic data was weaker than expected with a 5.6% decline in pending home sales. This was the fourth consecutive monthly decline and cut the annual growth rate to 1.1% which maintained concerns over the underlying growth trajectory. The industrial production and capacity use data was broadly in line with expectations and did little to shift yield expectations.
EUR/USD again dipped lower amid some speculation over a near-term peak, but lows did not extend beyond 1.3775 during the European session as USD/CHF struggled to gain a foothold above 0.8950.
The latest UK CBI retail sales data was sharply weaker than expected with a reading of 2 for October from 34 the previous month and was the lowest since July. Retailers were still generally optimistic surrounding the outlook with sales expected to improve in November. The data did, however, reinforce market suspicions that growth was at the very least starting to level out which dampened enthusiasm for Sterling.
There were also several generally cautious media reports over longer-term UK prospects and GBP/USD was again unable to hold above the 1.62 level during the day with a retreat to lows below 1.6150.