JPY headed lower as speculative names tentatively added fresh positions after the original G7 statement was backed by Russia. A U.K. Treasury official said it is not aimed at any particular currency or country, while BoE Governor King said policies aimed at growth that have a FX impact should be allowed to flow through. EUR benefited from resurgence in JPY-cross demand, which saw EUR-USD threaten 1.3500 and EUR-JPY rally out of 125.00 to 126.40. GBP plunged on the BoE Inflation Report and comments from King, which still left the door open on more stimulus, though he reiterated that there were limits to what further stimulus could achieve. CHF weakened after the government introduced a 1% capital buffer on banks for mortgages in a bid to deal with overinflated property prices.

[EUR, USD]
EUR-USD maintained a supportive tone and firmed up towards the 1.3500 region. Overall, European trade has been quiet, but a pick up in EUR-JPY after the European open aided the upturn. Buyers of EUR-USD have included a U.S. account and a large European name. The short term picture turned more favourable for the topside after it jumped from the 1.3370-80 area on Tuesday. However, there are decent orders in place towards 1.3500, where some option positions have been freshly established since EUR-USD broke down last week. Market participants are still mindful of last week's comments from Draghi on the CPI outlook and the EUR, which could ultimately limit how far EUR can go on the topside.

[USD, JPY]
JPY eased from the European open on speculative activity. USD-JPY firmed up from just under 93.00 to trade back over 93.30. Buying momentum increased up to the 93.80 area after BoE Governor King said that if countries stimulate their economies and there is a FX impact it should be allowed to flow through. The move higher was supported by JPY cross demand. EUR-JPY bounced out of the 125.00 region to trade as high as 126.40 and AUD-JPY firmed up from 96.10-15 to 96.80. Other policy makers that backed the original G7 statement, included Russia, while overnight a U.K. Treasury official also said overnight that yesterday's statement was not aimed at a particular currency or country, which is contrary to remarks made by an unnamed official that directly highlighted concerns over Japanese policy. However, JPY will remain choppy while this uncertainty remains into the G20.

[GBP, USD]
GBP traded at trend lows after the BoE Inflation Report and dovish comments from BoE Governor King. Cable swung from a kneejerk high of 1.5684 to reach 1.5534 lows. King said the Bank will look through CPI to support the recovery, which will keep alive expectations that the Bank could provide more stimulus if it deemed appropriate. King did acknowledge, however, that CPI will be boosted by GBP's decline and the rise in energy bills. Growth was seen at 2% in the two year forecast horizon, but there was no impact from the rise in the inflation forecast to 2% from 1.8% previously. King said the BoE can do more monetary policy, but reiterated previous comments made in other press conferences that the impact on demand may be less.

[USD, CHF]
EUR-CHF cleared offers up to 1.2370 on an early push higher by local names. A flurry of stops were also flushed out between 1.2350 and 1.2370, which gave the move added traction to 1.2385. The cross started the session at higher levels after SNB's Jordan left the door open on more policy measures if necessary and reaffirmed that the franc cap was here to stay in comments on Tuesday. Jordan also said there were no inflationary risk at present. Of note, there was some early positioning today ahead of an announcement by the Swiss government to tackle overheating property prices, which will see capital buffers introduced on banks to hold an extra 1% for mortgages. If EUR-CHF takes out 1.2380 then more accounts are likely to add to long positions and reinforces the potential for a move on early February highs around 1.2400-20.

[USD, CAD]
USD-CAD fell steadily on Tuesday, from just over 1.0085 in early North American trade to 1.0020 by the close. In Asia it extended to 1.0014, though support held amid interest from range players and talk of option related bids. The pick up in CAD$ was due to news that Canada's Nexen has received all necessary approvals to be taken over by China's CNOOC. The deal, worth about C$15 bln, is expected to close on February 25th, and could continue to weigh on USD-CAD. A break of 1.0000 is expected to trigger sell stops, while offers have been lowered in size from the 1.0040-50 area.