EUR/US$
The dollar was trapped in relatively narrow ranges around the 1.42 level against the Euro in European trading on Wednesday.
The Euro-zone economic data was weaker than expected with a further small monthly decline in industrial orders to give a 30% annual decline, although the market impact was limited.
The reported Morgan Stanley losses together with a Wells Fargo warning over an increase in bad-debt provisions unsettled confidence to some extent which triggered defensive dollar demand, but the US currency was unable to gain any traction and failed to mount a significant attack on Euro support levels in the 1.4150 region.
The latest US house-price data recorded a 0.9% monthly increase for May which cut the annual decline to 5.9% and provided some degree of support for risk appetite.
There is still a lack of underlying confidence in the Federal Reserve’s monetary policies while there are also very important concerns over the fiscal outlook which is dampening confidence in the dollar. It remains the case that the US currency will be dependent on weakness in other major currencies to secure strong buying support.
The Euro pushed to highs just above 1.4250 against the dollar, but again hit tough resistance around this level as ranges were generally narrow.
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Yen
Bank of Japan member Yamaguchi was very cautious over the outlook for corporate funding in comments on Wednesday which will maintain pressure for supportive measures. Asian equity markets were firm with stocks looking to extend gains for a 10th successive session as risk appetite held broadly firm.
Nevertheless, the yen was able to resist any significant selling pressure with the dollar unable to make a challenge on resistance levels above the 94 level which still suggests a reluctance to sell the Japanese currency aggressively even when risk appetite is firmer.
The dollar dipped to 93.10 on deteriorating risk appetite before recovering back to 93.70 as Wall Street rallied from early losses with the Japanese currency still resisting aggressive selling.
Sterling
Sterling was unsettled on Wednesday by reports that the banking sector would require further capital and by a gloomy assessment of medium-term prospects by the NIESR institute. If the housing sector in particular and economy as a whole is unable to make any significant headway then the government debt fears will tend to increase further which will represent a stern test for Sterling confidence.
The MPC minutes were watched closely on Wednesday with the Bank of England recording a 9-0 vote for unchanged interest rates and no changes to the GBP125bn quantitative easing programme with a review scheduled at the August meeting.
The bank was slightly less pessimistic over near-term economic prospects which provided some near-term support for Sterling, but underlying confidence is still liable to deteriorate.
Risk appetite edged stronger in US trading on Wednesday and the UK currency also rallied back to the 1.65 area against the dollar with support on dips towards 0.87 against the Euro.
Swiss franc
The dollar briefly pushed above the 1.07 level against the franc on Wednesday, but was again unable to secure any significant momentum and weakened back to near 1.0650 in US trading. The Euro was unable to make any headway against the Swiss currency.
There will be increased speculation over National Bank intervention if the dollar weakens towards the 1.06 level, the lows seen during June.
The franc should lose some degree of defensive support if there is a sustained improvement in risk appetite with choppy trading liable to continue.
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Australian dollar
The Australian dollar was initially unable to sustain the gains on Wednesday and edged back towards the 0.8120 region. The headline consumer inflation data was in line with market expectations and did not have a substantial impact. Comments from Reserve Bank officials will be watched closely, although global risk conditions are likely to remain dominant.
Markets will still look to buy the currency on significant retreats which will limit near-term downside risks for the currency and the Australian dollar challenged the 0.82 resistance area in New York.
