The dollar was subjected to renewed selling pressure early in the Asian session on Wednesday with Fed Chairman Bernanke maintaining the run of dovish rhetoric from key US central bankers. There was a further commitment to keep policy very accommodative even when the bond purchase programme is reduced. EUR/USD jumped to highs near 1.3580, but was unable to hold the gains and retreated to the 1.3520 area early in Europe.
The US retail sales data was stronger than expected with a 0.4% gain for October following an unchanged reading the previous month while core sales rose 0.2%. Headline CPI data was weaker than expected with a 0.1% monthly decline while the core increase met expectations at 0.1%. The dollar was initially unable to gain much support from the data releases and the Euro attempted to creep higher again with no clear impetus for a shift in US policy expectations.
ECB member and Bundesbank head Weidmann offered some support to the current policy stance in comments on Wednesday while being very cautious on the need for any further easing. Later in the New York session, however, there were reports from the ECB that the bank would consider a cut in the deposit rate to -0.1% from 0.0% if further easing is required. Although there were also comments that no decision had been made, the comments reinforced speculation over a more aggressive ECB stance to promise further action and talk-down the Euro.
In response, EUR/USD retreated back below the 1.35 level with slightly more optimistic comments from Regional Fed President Bullard pushing the pair to lows near 1.3450 as December tapering was kept alive as a possibility. USD/JPY managed to find support below 100 without gaining any momentum as EUR/JPY dipped below 135.0.
There were unanimous 9-0 votes on interest rates and quantitative easing in the Bank of England November minutes. The bank was more optimistic surrounding the short-term growth outlook, but there were also expectations of subdued medium-term growth. There were also comments downplaying the potential for higher interest rates even if unemployment hit 7%.
Sterling dipped initially following the release, but quickly regained ground as GBP/USD rallied to 1.6150 from 1.6100 while EUR/GBP retreated to lows just below 0.8330.
The Australian dollar was undermined by IMF comments stating that the currency was overvalued by around 10% and AUD/USD dipped to lows near 0.9360 before finding support.