Dollar Weakens Broadly On Fed Tapering Worries

The greenback fell broadly against its peers on Wednesday ahead of Thursday's U.S retail sales and jobless claims which may dim prospects that the Federal Reserve will reduce its monetary stimulus in near future.

Versus the Japanese yen, although the greenback rebounded from Tuesday's low at 95.59 to 97.03 in European morning, prices fell sharply in New York morning due to dollar's broad-based weakness together with the selloff in Japan's Nikkei future (down by more than 300 points), the pair eventually penetrated said 95.59 to 95.15 at U.S. midday before staging a recovery to 96.17 in U.S. afternoon due to the rise in the yields in U.S. treasuries.

Although the single currency traded narrowly in thin Asian session and rose briefly to 1.3335 in European morning due to cross buying of euro versus yen, profit-taking capped its upside and price retreated to 1.3266 but dollar's broad-based weakness pushed the pair above said 1.3335 to a fresh 3-1/2 month top at 1.3360 before retreating in U.S. afternoon.

The British pound edged higher from 1.5634 to 1.5683 in European morning due to active cross buying of sterling versus euro before pullback to 1.5643. However, renewed buying interest pushed the pair above last Thursday high at 1.5685 to a 4-month high at 1.5701 in New York morning before retreating in U.S. afternoon.

In other news, BOE FPC member Fisher said 'don't want higher house prices but do want more transaction to boost demand; funding for lending Scheme has had stimulus effect on economy; economy growing again but slowly, must keep nursing signs of recovery; Q2 growth is looking very good in U.K.' ECB's Coeure said 'inflation expectations anchored around 2%.'

On the data front, eurozone industrial production in April came in at 0.4% m/m and -0.6% y/y, better than the forecast of -0.2% and -1.2% respectively. U.K. claimant count in May came in at -8.6K, versus the forecast of -5.0K. Unemployment rate in April was still at 7.8%, same as forecast.

Data to be released on Thursday:

New Zealand rate decision, Australia employment change, unemployment rate, Germany wholesale price index, Canada capacity utilisation, new housing price index, U.S. retail sales, jobless claim, import price index, export price index, business inventories.