by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar weakened to lows just beyond 1.5610 in early US trading, but there was a lack of conviction over the selling. The US currency gained some respite ahead of the Federal Reserve interest rate decision with oil and gold prices both falling sharply, but it was unable to sustain the gains.
The US data provided no impetus to the markets as it was very close to expectations. Durable goods orders were unchanged in May from the previous month while core orders fell 0.9% after a significant increase previously.
New home sales fell to an annual rate of 512,000 in May from 525,000 the previous month. There was a further small increase in inventories while prices also fell which did not suggest any recovery in the sector and overall confidence in the economy will remain fragile.
At the latest FOMC meeting, the Federal Reserve left interest rates on hold at 2.00%. There was a 9-1 vote with Fisher dissenting and calling for a rate increase. In the statement accompanying the decision, the Fed referred to increased inflation risks while the downside risks to growth had eased slightly. There were, however, still serious concerns over the growth outlook and the Fed did not suggest that it would look for an imminent move to increase rates. There was no major move in interest rate futures which will tend to undermine the US currency.
The Euro-zone industrial orders data was stronger than expected with a 2.0% monthly increase for April. ECB members maintained a tough stance on inflation in their comments on Thursday with a particular emphasis on wage inflation risks. Officials again warned over the possibility of a small interest rate increase in July, but not a series of increases. Disappointment over the statement following the Fed decision weakened the dollar after the Fed decision with a push above resistance around the 1.5630 level and a high near 1.5690.
Yen
The Japanese trade surplus for May fell 7.6% over the year to JPY366bn although this was slightly above expectations. Exports recorded positive growth which will provide some degree of relief for the Japanese currency, although the immediate impact will be very limited with a focus on global trends.
The yen was little changed on Wednesday ahead of the Federal Reserve interest rate decision with the dollar just below the 108.0 level, while the yen remained under pressure against the Euro.
Following the Fed decision, the Japanese tested all-time lows against the Euro above 169 while the US currency was unable to sustain levels above 108.30.
Sterling
The UK currency tested levels near 1.9750 against the dollar on Wednesday, but was unable to sustain the gains in European trading even with the dollar generally on the defensive. The UK currency weakened to near 0.7940 against the Euro after the Fed decision, but regained ground against the dollar.
The latest CBI retail survey was slightly stronger than expected with a reading in realised sales of -9 in June from -14 the previous month, although expectations were still generally weak.
MPC comments in testimony to the Treasury will be very important on Thursday. The UK currency will gain some support if there is a warning that interest rates may have to increase. Bank of England Deputy Governor Gieve was generally pessimistic over the economic prospects in comments on Wednesday.
The placing of around GBP4bn in shares by Barclays Bank should provide some support to the UK currency as it should reinforce capital inflows.
Swiss Franc
The dollar was unable to hold above the 1.0440 level on Wednesday and weakened following the Federal Reserve interest rate decision with lows below 1.0350. There was further Euro buying support below 1.62 against the franc.
There were no significant domestic incentives during the day with international influences dominant.
Overall risk appetite was still generally firm which curbed short-term support for the franc and there is still a sense of unease over the domestic economic trends.
Source: VantagePoint Software, Market Technologeis, LLC
Australian dollar
There was little change in the Australian dollar in local trading on Wednesday with the currency edging slightly lower. The currency will gain further support from optimism over commodity earnings as prices remain at historically elevated levels. There is also still scope for capital inflows from Japan on yield grounds.
The Australian dollar edged lower ahead of the Federal Reserve interest rate decision as commodity prices came under pressure, but the currency pushed higher following the Fed interest rate decision with a high close to the 0.96 level.
