The Dow Jones FXCM Dollar Index rallied 0.05 percent as Australian Dollar, British Pound, and Euro declines offset continued USDJPY weakness.
The British Pound was the most important driver with the highest volatility on the day. Earlier in the European session, UK Prime Minister David Cameron told reporters that he wanted a deal between U.K. and European Union to keep UK as an active member. Yet amid the concerns on the ongoing fundamental problems in EU such as the unsolved debt crisis, Cameron pledged a referendum on Britain leaving the union by 2017. British Pound rose up 35 pips to $1.5847 on Cameron's remarks.
The second mover for the Pound was the surprising drop in UK Jobless Claims with the lowest level in four months. The simultaneous release of Minutes from the Bank of England's most recent meeting showed that officials decided to maintain their key interest rate at 0.5 percent and keep the asset purchase target at 375 billion pounds. More importantly, the vote was a near-unanimous 8-1 in favor of unchanged policy and further Quantitative Easing seems unlikely with CPI inflation at 2.7 percent. Bullish developments pushed the Sterling higher against the greenback.
The Japanese Yen retraced earlier declines on the session, as investors were more bullish on Japanese market. The government said that Bank of Japan's inflation target of 2 percent was not enough without specific timeline on monetary policy stimulus; officials said price stability should be achieved as soon as possible in their joint report. Tomorrow, traders may look to Japanese December Consumer Price Index to guide the short-term moves in the USDJPY.
Traders pushed the Australian Dollar lower against the US dollar as the Australian Consumer Price Index came out lower than expected. Investors saw an increased likelihood that the Reserve Bank of Australia will reduce the benchmark rate at Feb. 5 meeting. Tomorrow, China's HSBC manufacturing PMI will be the top news on the Australian dollar.
--Written by Renee Mu, DailyFX Research Team