Market Review - 22/01/2014 21:38GMT

Dollar trades mixed versus other major currencies on Wednesday

The greenback traded mixed against other major rivals on Wednesday as market participants were waiting for more signals whether that Federal Reserve's will reduce its quantitative easing program at the conclusion of its upcoming policy meeting on January 29 to USD65 billion from the current USD75 billion.

During the day, the single currency rose to 1.3580 in Asia and then dropped to 1.3535 in European morning due mainly to active cross-selling of euro versus sterling, however, cable's intra-day rally lent support to the single currency and price later rose further to 1.3584 in New York morning before easing.

Versus the Japanese yen, although dollar dropped briefly to 103.97 after the Bank of Japan kept monetary policy unchanged following its monthly policy meeting on Wednesday and maintained its assessment that Japan's economy 'has continued to recover moderately', renewed demand for greenback lifted price sharply higher to 104.57 ahead of European morning and later rose to 104.59 near New York close.

Bank of Japan report stated that 'keeps monetary policy steady by unanimous vote, pledges to increase monetary base as annual pace of 60-70 trillion yen; Japan core CPI expected 1.3% in FY2014/15 vs. 1.3% projected in Oct, excluding effect of sales tax hike in April 2014; Japan core CPI expected 1.9% in FY2015/16 vs. 1.9% projected in Oct, excluding effect of sales tax hike; BOJ board turns by 8-1 vote a proposal by Kiuchi to make 2 % inflation target a medium- to long-term goal; Japan GDP expected +1.4% in FY2014/15 vs. 1.5% projected in Oct; Japan GDP expected +1.5% FY2015.16 vs. 1.5% projected in Oct; Japan's economy recovering moderately with front-loaded increase in demand prior to sale tax hike being observed; Japan annual CPI growth likely to move around 1 to 1.5% for time being.'

The British pound rallied against the dollar on Wednesday after data showed that the rate of unemployment in the U.K. fell to 7.1% in November. During the day, although cable retreated after marginal gain above Tuesday's high of 1.6387 to 1.6492 in Asia, price found support at 1.6451 in European morning and surged sharply to 1.6553 due to a 'surprise' sharp drop in U.K. unemployment and BoE MPC vote outcome . Later, cable rose further to 1.6588 in New York morning before easing.

BoE showed MPC voted 9-0 to keep QE bond purchase total at 375 billion pounds and voted 9-0 to keep rates at 0.5%. BoE said in the statement that 'It was now likely that the unemployment rate would reach the 7% threshold materially earlier than previously expected," the minutes said, but officials "saw no immediate need to raise Bank Rate," the bank’s benchmark interest rate, "even if the 7% unemployment threshold were to be reached in the near future.'

On the data front, the ONS said the number of people claiming jobless benefits in U.K. fell by 24,000 in December, compared to expectations for a decline of 32,000.

In the other news, Bank of Canada left interest rates on hold at 1.00% and said 'downside risks to inflation have grown in importance; direction of next rate move to depend on data; sees inflation path lower than previous expected but still returning to the 2% target in about two years; stronger U.S. demand, recent C$ fall should help exports, business investment; no sign yet of rebalancing to export - and investment-led growth; fundamental drivers of growth and future inflation appear to be strengthening; output cap has shrunk by 1/4 point from Oct report to between 3/4% and 1-3/4%; sees soft landing in housing market; household debt/disposable income ratio to stabilize; risks from elevated household imbalances haven't materially changed; sees 2.5% growth in 2014 (prev. 2.3%) and in 2015 (prev. 2.6%); Q4 2013 and Q1 2014 2.5% (prev. 2.3%); core and total inflation to remain around 1% in H1 2014; total CPI at 0.9% Q4 2013 and Q1 2014 (prev. 1.3% and 1.2%); despite C$ depreciation, C$ remains strong and will continue to pose competitiveness challenges for non-commodity exports; C$ depreciation reflects improved U.S. growth prospects and reduced safe-haven effects; C$ depreciation will exert upward pressure on inflation.'

Data to be released on Thursday:

New Zealand business manufacturing PMI, ANZ consumer confidence, China HSBC manufacturing PMI, Japan BOJ monthly economic report, France business climate, France manufacturing PMI, service PMI, EU current account, manufacturing PMI, service PMI, consumer confidence, U.K. CBI distributive trades, Canada retail sales, U.S. Chicago Fed index, jobless claims, markit PMI, house price, US existing home sales and leading index.