EUR/US$
The dollar was unable to make any headway in European trading on Wednesday and the Euro pushed higher during the day as an improvement in risk appetite curbed demand for the US currency and it dipped to a one-month low on a trade-weighted basis.
US consumer prices rose 0.7% in June as gasoline prices rose sharply while there was a core increase in prices of 0.2% which was in line with expectations. Overall consumer prices still fell 1.4% over the year while there was a 1.7% underlying increase. The immediate market impact of the data should remain limited.
The growth-orientated data offered some degree of support with the New York Empire manufacturing index strengthening to -0.6 in July from -9.4 the previous month and this was the strongest reading sine October last year. The decline in industrial output also slowed to 0.4% in June from a revised 1.2% decline the previous month while there was a further small decline in capacity use to 68.0% from 68.2%. The Philadelphia Fed survey will be watched closely on Thursday for confirmation of an improvement in manufacturing conditions.
The combination of data releases and corporate earnings may help underpin risk appetite in the near term and the Euro pushed to highs above the 1.41 level, although the improvement in confidence is still liable to be very fragile.
The Federal Reserve minutes from June reported mixed views with a majority still very concerned over the economy, although there were also some increase in medium-term inflation fears. The Fed raised its 2009 GDP forecasts slightly, although the unemployment forecasts were also increased.
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Yen
The Bank of Japan held interest rates at 0.10% following the latest council meeting. The bank stated that the economy had stopped deteriorating, but it was still very cautious over the outlook and downgraded the 2009/10 GDP forecast. The bank also announced that the special corporate funding support measures would be extended for a further three months.
The dollar held close to 93.50 on Wednesday as international confidence was supported by the US corporate earnings data. The mood of improved risk appetite was sustained in US trading as there was a robust rally on Wall Street and the dollar pushed to highs above the 94.20 level while the Euro strengthened to near 133.20 as yen demand weakened.
Sterling
The UK currency held firm in early European trading on Wednesday and gained significant support during the day from the underlying improvement in international risk appetite.
The headline UK unemployment claimant count increase was lower than expected at 23,800 compared with expectations of an increase of over 40,000 for the month which provided some degree of initial support for the UK currency.
The ILO unemployment rate, however, was significantly worse than expected with an increase to 7.6% from 7.2% the previous month and this represented the biggest quarterly increase in unemployment on record with the level rising to a 12-year high. There will be some suspicions that the claimant count is being kept artificially low which will dampen sentiment and limit Sterling support.
Rising stock markets and a weaker dollar were crucial in allowing Sterling gains to above the 1.6450 level, although there was significant selling above this area.
Swiss franc
The dollar was unable to make a fresh challenge on levels above 1.09 on Wednesday and dipped sharply to lows below 1.0740 in New York. The franc proved resilient against the Euro and strengthened to highs near 1.5160.
The franc retained a firm tone despite the improvement in risk appetite which suggests that there may have been some support from optimism over the global banking sector.
The latest retail sales data was weaker than expected with a 1.4% decline in the year to June after a 1.2% increase the previous month, but the data impact was limited.
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Australian dollar
The Australian dollar has maintained a firm tone over the past 24 hours with support from a weaker US currency and a significant improvement in global risk appetite. There were reports of strong institutional demand for the currency and it pushed to a high around 0.7980 in local trading on Wednesday.
The domestic data had no significant influence with a decline in the leading index. Confidence could remain firmer in the very short term and the Australian currency pushed to highs above the 0.8050 level as Wall Street secured strong gains and commodity prices strengthened to two-week highs.
