FX round-up: Currencies take a rest after Fed hints

Wednesday saw the Fed Chair Janet Yellen confirm that there would be a winding down of it's $4.5 trillion balance sheet in October and hinted at a possible rate increase by the end of the year.

In her speech, Yellen said that the fall in inflation this year remained a mystery and added that the central bank was ready to change the interest rate outlook if needed.

According to CME's FedWatch tool, interest rate futures are now pricing in about a 70% chance of a December hike.

"The hint of a rate hike in December was no surprise to us and we reiterate our stand, that it is not likely to unravel the market's bullish posture in anticipation of tax cuts," said Peter Cardillo, chief market economist at First Standard Financial.

After such a key release from a major central bank, its no surprise that the FX market was taking a breather on Thursday, with the dollar index down only 0.2% to 92.319 by 1600 BST.

The US dollar was able to hold onto ground after the release of the unemployment claims figure that showed a fall to 259,000 as well as a positive Philly Fed manufacturing reading of 23.8, both figures beating analyst expectations.

Cable consolidated in Friday trading, with support at 1.3466 and resistance at 1.3543. On the day, it managed to chalk up a decent 0.4% rally to 1.3551, testing at the higher range.

In the UK, public sector net borrowing came in at £5.1 billion, below expectations of £6.5 billion. This is expected to help the Chancellor in his next budget due in November to ease austerity.

Against the euro, sterling traded 0.14% higher to 1.1364, finding resistance in this area, which was also the overnight high.

European Central Bank (ECB) President Mario Draghi gave a speech during the day at the European Systemic Risk Board in Frankfurt, in which he said, "Financial and business cycles can potentially become de-synchronised, meaning that financial imbalances can grow in an environment characterised by relatively muted inflation," adding, "In such an environment, the use of monetary policy is not the right instrument to address financial imbalances, and may lead to substantial deviations of aggregate output and inflation from their desirable levels."

"Anything he says that doesn't sound dovish, the market will take it as hawkish," Amundi's Upadhyaya at Amundi Pioneer Asset Management said.

Draghi's comments did little for the single currency in the morning, but the euro managed to gain 0.38% against the dollar to 1.1939 by 1700 BST.

The latest Bank of Japan (BoJ) press conference took place on Friday morning with no significant comments or forward guidance from Governor Haruhiko Kuroda. USD/JPY was little changed on the day, up 0.12% to 112.36.

The big winner for the day was the Australian dollar, which rallied 1.21% against it's US counterpart to 0.7935 after a speech delivered by Reserve Bank of Australia (RBA) Governor Philip Lowe, titled "The Next Chapter".

Market participants took the upbeat message from Lowe's speech in which he said, "here in Western Australia [where the speech was given] there were signs of improvement after what has been a difficult few years". He also stated that growth would be averaging "around the 3% mark over the next couple of years" and that this "should lead to some pick-up in wages growth".