Dollar Remained Broadly Pressured Wednesday

The dollar remained broadly pressured on Wednesday as Moody's threat to downgrade the country's credit rating continued to impact. The currency was further hit by continued speculation that the Fed would announce more QE – with probability of 65% now – that they will at their next rate meeting on Thursday. There was further weakness as a result of a broad-based rise in risk appetite following the German Constitutional Court's ruling legitimising German involvement in the ESM, albeit with quite stringent conditions.

In China, President Wen Jibao pushed up risk appetite after he was quite upbeat in his speech about the economy saying he had 'full confidence' this year's growth targets would be met. On the data front Wholesale Inventories rose in July by 0.7% vs 0.3% expected and -0.2% previous; The Import Price Index undershot its target reaching only 0.7% when it had been expected to rise by 1.5%. MBA Mortgage Applications showed a 11.1% rise vs -2.4% previous.

EUR
The euro rose on Wednesday following a successful verdict by the German Constitutional Court, which voted to reject the motion to block the ESM. The court, however, stipulated conditions including a cap on German liability at 190bn versus the 500bn previously expected. The euro was further supported by the prospect of a deeper financial union between member states after a new Banking Supervisor was announced.

There was still no request for aid from Spain and Prime Minister Rajoy said he would be watching risk premiums closely and basing a decision on that. Currently yields have fallen to below 6.0% when they had reached 7.62% at the height of the crisis. Positive data, showing a lower-than-expected fall in Industrial Production to -2.3% from -2.1% when a -3.3% fall had been expected also helped propel the single currency higher on Wednesday.

GBP
The pound rose on Tuesday after further strong data helped improve the outlook for the U.K economy and steadily reduced the possibility of the BOE using more QE. After yesterday's strong trade balance figures which showed the deficit narrow much more than expected on Wednesday there was some very strong employment data which further backed up the proposition that the U.K might be struggling out of its recession.

Jobless Claims (Aug), which had been expected to not change, actually fell by 15k; the Claimant Count (Jul) remained at 4.8% when a basis point rise had been on the cards; Employment Change 3m3m (Jul) rose by 236k when a much smaller 169k rise had been expected; Average Weekly Earnings Ex bonuses 3myoy (July) rose too; however, the actual Unemployment Rate 3m(Jul) was the only negative stat after it showed a rise to 8.1% from 8.0% previously.

JPY
The yen weakened on Wednesday after risk appetite rose following a successful court ruling in Germany which threw out a challenge against the Europe's new bailout fund, the ESM. The prospect of deeper banking union after the announcement of a new Banking Supervisor for the eurozone and relatively strong data also helped improve the outlook for the eurozone further buoying up sentiment.

The yen suffered as haven demand reduced. Data out overnight showed overall growth, with Machine Orders yoy (Jul) rising by 1.7% vs -3.6% expected and -9.9% previously; mom they rose by a striking 4.6% vs 2.0% expected. The Tertiary Industry Index mom (Jul) fell by -0.8% vs -0.5% expected; The Domestic Corporate Goods Price Index yoy (Aug) fell by -1.8% vs -1.9% expected; mom it rose by 0.3% vs 0.1% expected.