The dollar was mixed in N.Y. trade on Wednesday, firming up some against the euro, and CHF, while dipping marginally versus the CAD and AUD. USD-JPY found a footing over 93.25, though traded a narrow range through the session. On the economic front, January retail sales were about in line with expectations, while import prices firmed a bit less than forecasts. EUR-USD managed to trade over 1.3500 in early trade, though quickly fell back as sellers emerged quickly. Research reports of potential ECB rate cuts this year made the rounds, and likely weighed some on the euro.

[EUR, USD]
The EUR saw limited upside as FX levels raise policy risk. Recent FX moves have seen more explicit posturing on currencies. ECB's Draghi acknowledged downside risks to inflation stemming from EUR appreciation after week's ECB rate decision, which effectively put a short term top in place. Since then, European policy makers discussed EUR levels at the eurogroup meeting, but it was concluded that it was a topic for the G20 and was followed by an unusual G7 reminder on "market determined exchange rates and policy aimed at domestic objectives with domestic instruments". In central bank speak' "not FX intervention or foreign bond buying". Meanwhile, more unofficial comments carried by the German Bild said the ECB is worried that EUR strength could hurt the recovery in crisis states. Against this backdrop, a well known U.S. think tank said the ECB may cut rates in H2, while a leading U.S. house also tipped two rate cuts of 25 bp and negative deposit rates. EUR-USD pulled back from 1.3520 to under 1.3430.

[USD, JPY]
USD-JPY stabilized after more G7 rhetoric. After trading between 93.00 and 93.80 during the European morning it is now settled close to 93.50. It pulled back from 93.65 at the N.Y. open and briefly traded into 93.30, where supportive interest was noted. The USD-JPY tone is much better today after U.K. and Canada have both explicitly stated that Japan was not singled out yesterday in the G7 statement. Meanwhile, Dow Jones carried remarks from another unnamed official that claimed France is "totally isolated" on FX policy. Some cynical market commentators believe that G7 members would rather have a strong Japan in the Asia region than a strong China and welcome Japan's attempts to boost economic activity.

[GBP, USD]
Cable met U.S. account offers from 1.5580, which kept the bias skewed to the downside. GBP reacted adversely to the BoE Inflation Report and Cable lost 150 pips from high to low. The BoE revised up its inflation outlook, but pinned it on temporary factors, leaving its focus on measures to support the economic recovery. The market judged that this makes QE more likely, but King once again warned there were limits to what monetary policy could achieve. Also weighing on the pound via EUR-GBP was news that Vodafone plans to buy Kabel Deutschland. The cross traded just over 0.8680 and is just a short push from recent highs around 0.8715.

[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. Aas EUR-USD eased back in N.Y., and USD-CH remained firm, the cross eased back to 1.2340 in late trade.

[USD, CAD]
USD-CAD stayed under 1.0050 all session, though saw buyers return into the 1.0010 region. Decent bids are seen in place at 1.0000, though since the announcement that Canada's Nexen has received all necessary approvals to be taken over by China's CNOOC, the pairing has been sold into modest upticks. 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.