Yen

The Japanese all-industries index fell 0.9% for June which reinforced fears over the economy, although it was close to expectations which limited the impact. The yen will remain vulnerable to some significant selling pressure if there is a recovery in high-yield currencies such as the Australian dollar.

Overall confidence in the financial sector has weakened again and this should limit the scope for yen selling with underlying caution over carry trades still an important factor. There is still the potential for reduced capital outflows from Japan which will support the yen, especially if commodity prices are subjected to renewed selling pressure.

The US dollar struggled to hold gains above the 110.0 level against the yen and the Japanese currency strengthened to 161.50 against the Euro as commodity prices fell.

Sterling

The UK currency drifted weaker on Wednesday ahead of the central bank minutes with selling pressure above 1.8650 against the dollar.

According to the minutes, the Bank of England voted by a 7-2 vote for unchanged interest rates in August. Blanchflower voted for a cut while Besley voted for an increase, the same outcome as the previous month. The bank did voice increased fears over the growth outlook with a statement that there had been a deterioration over the past month.

There was some discussion of a rate cut which will curb Sterling support, although all outcomes were considered which illustrates the difficulties faced by the bank.

The latest CBI industrial orders survey weakened further to -13 in August from -8 previously and output expectations were at 7-year lows which reinforced negative sentiment towards the UK economy. The retail sales data will be watched very closely on Thursday with the data liable to trigger volatile Sterling trading, especially given the risk of an erratic figure.

Swiss Franc

The dollar found further support close to 1.09 against the franc and strengthened to re-challenge resistance above 1.10. The Swiss currency also had a weaker tone against the Euro with lows beyond 1.62.

There was a temporary recovery in US financial stocks which undermined near-term demand for the Swiss currency, but the dollar still struggled to hold above the 1.10 level.

There will be further underlying fears over the domestic economy which will limit Swiss currency support, especially if there is evidence of renewed stresses within the financial sector.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian currency pushed to 0.8750 against the US dollar in local trading on Wednesday and held a firmer tone, but was unable to extend the gains and drifted back towards 0.87.

The currency is still being hampered by expectations of lower interest rates over the next few months and underlying sentiment towards the economy and currency will remain weaker. Recoveries are also liable to attract a fresh reduction in carry trades which will tend to stifle Australian currency gains.

Over the remainder of Wednesday, the Australian dollar fluctuated in a 0.87 - 0.8750 range against the US currency as equity and commodity markets struggled to secure a decisive trend.

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