FX round-up: Two-day rally in US dollar halted

A two-day rally in the US dollar was broken on Tuesday following a much weaker than expected reading on America’s trade deficit.

Euro/dollar ended the day higher by 0.28% to reach 1.1118.

The US trade balance ballooned to -$51.4bn in March after a reading of -$35.9bn in the month before (consensus: -$41.7bn) after the shutdown of the West Coast ports was lifted, leading to a surge in imports.

Bank of America-Merrill Lynch and JP Morgan both lowered their forecasts for US first quarter GDP growth to an annualised rate of -0.5% as a result.

Service sector activity on the other hand accelerated in April, with the ISM's purchasing managers’ index (PMI) rising to 57.8 from 56.5 in the month before (consensus: 56.2).

Cable was also buoyed by the weakness in the greenback despite a poor reading on Markit’s construction sector activity for Britain.

Pound finished the session up by 0.32% to reach 1.5168.

Acting as a backdrop, the situation in Greece continued to steal the headlines after a report in the Financial Times said the IMF had threatened not to disburse its portion of the remaining bailout funds unless the country’s creditors agree to provide debt relief.

By the end of trading dollar/yen was lower by 0.14% to 119.94.

AUD/USD moved higher after the central bank signalled it was moving towards a more neutral stance on rates. That came after the monetary authority cut rates.