GBP/USD dipped sharply to 21-month lows at 1.2500.

The Bank Japan maintained interest rates at -0.1% following the latest policy decision and also pledged to maintain the ceiling of 0.25% for 10-year bond yields. The bank also stated that it will maintain daily operations to cap yields and reiterated that it will ease policy without hesitation if needed. The bank maintained a very dovish stance despite raising the inflation forecast for this fiscal year.

There had been some speculation that the bank would moderate its stance and the very dovish statement triggered heavy yen losses.

There were further concerns over the Ukraine situation on Wednesday with a particular focus on energy policies.

After cutting off exports to Poland and Bulgaria, Russia warned that it would take lightening action against countries that intervened.

The rhetoric maintained fears over an escalation in the conflict with NATO countries continuing to provide increased military support. Rhetoric will continue to be watched very closely in the short term with Biden due to make a speech later in the day.

Ukraine concerns were again a significant negative factor for the Euro and the currency remained under pressure amid fears over the Euro-zone outlook.

There was also speculation that the ECB would not be able to respond to inflation pressures and would focus more on the growth outlook.EUR/USD briefly dipped to 5-year lows below the 1.0500 level before a slight rebound.

The dollar overall surged to a 5-year high as doubts over the US outlook were more than overshadowed by the market assessment that there are no viable alternatives at this stage.

The latest German CPI inflation data will be released on Thursday. Consensus forecasts are for the headline year-on-year rate to edge lower to 7.2% from 7.3%.

A stronger than expected figure for Germany would increase Bundesbank demands for a tighter monetary policy while increasing dilemmas for the ECB.

The UK CBI retail sales index slumped to -35 for April from 9 the previous month and below consensus forecasts of -3 and the first negative reading for 13 months. Retailers also expect sales to decline in May, although at a slower rate as overall consumer confidence remained vulnerable. The survey reinforced concerns over the UK consumer spending outlook.

Overall confidence in the Euro-zone outlook weakened further, especially given on-going concerns over the Ukraine war and threat to energy supplies. Markets were less confident that the ECB would tighten monetary policy.

The US economy was again seen as a relative winner in global terms. The dollar continued to secure an element of defensive demand and dominated global markets.

EUR/USD slumped to 5-year lows just below 1.0500 before finding some buyers. US longer-term bond yields rebounded from intra-day lows. A rebound in equites limited yen support.

USD/JPY jumped to test the 130.0 area following the Bank of Japan policy decision. Yield trends limited support for the Swiss currency. USD/CHF posted fresh 23-month highs just above 0.9700.

Sterling remained under pressure given a lack of domestic confidence, although overall net selling eased. GBP/USD dipped sharply to 21-month lows at 1.2500. GBP/EUR rallied to the 1.1900 area.

Commodity currencies were unable to sustain a recovery from intra-day lows. USD/CAD settled just below 1.2850 amid choppy trading in oil prices.

AUD/USD dipped to 2-month lows below 0.7100 despite expectations of a Reserve Bank rate hike next week.

Economic Calendar

09:00Italy - Consumer Confidence(APR)100.8
09:00Italy - Business Confidence(APR)110.3
10:00Euro-Zone Consumer Confidence(APR)-18.7
13:30USD GDP (Annualized)6.90%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.