At lunchtime during the European trading session the US dollar was sliding versus the euro and the pound while rising versus the yen. Stronger than expected inflationary data supported the pound versus the dollar but sterling's gains versus the euro have been rolled back.
The GBP/USD was higher at 1.6230 from 1.6193 after this morning's UK CPI report showed higher than expected inflationary pressures in the UK with y/y inflation rising 4.5%. Economists expected the data to show rising price pressures to the tune of 4.2%. Forecasts are for the Bank of England to increase rates between 2 and 4 bps. However, BOE Governor Mervyn King has been adamant in his opinion that the inflationary pressures in the UK economy are temporary increases due to the higher VAT and rising commodity prices. Thus may explain sterling's inability to hold gains versus the euro.
The EUR/GBP fell as low as 0.8681 from 0.8745 before recovering to 0.8730. Markets appear unconvinced the BOE will be increasing rates in the near terms and this may explain sterling's weakness. EUR/GBP support comes in at 0.8670 with a break here possibly triggering declines to 0.8620 where the 200-day moving average resides. Cable has resistance at 1.6515 with support coming in at 1.6300.
The dollar is mixed versus the remaining majors with the EUR/USD higher at 1.4180. Event risk remains for the euro as European finance ministers continue their second day of meetings surrounding the European debt crisis. The euro could receive support if a new aid package for Greece is announced. Initial resistance for the EUR/USD is found at yesterday's high of 1.4240 followed by 1.4340.
The Japanese yen is on its back foot as the USD/JPY has reached its highest level since the beginning of the month. Supporting the rise in the pair were comments from Bank of Japan Governor Shirakawa who suggested further monetary easing measures could be enacted. The USD/JPY is up at 81.60 from 81.13. Resistance is found at 82.05 where the 55-day moving average lies, followed by 82.80. Support comes in at 80.60 at the bottom of the consolidation pattern from the May 4th low.
Traders are now anticipating US building permits this afternoon as well as increased utilization rates.
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