EUR/US$
The Euro dipped to lows near 1.4050 in European trading on Thursday, but the US currency was unable to make any further progress and retained a generally weaker tone during the day. There were no major Euro-zone developments to guide markets.
The US economic data releases were mixed and did not have a decisive market impact, with the dollar unable to benefit from a slightly more cautious tone.
Initial jobless claims fell again to 522,000 in the latest week from a revised 569,000 the previous week. There was again a high degree of distortion from the auto sector as seasonal layoffs were lower than usual due in part to the number of job cuts already announced.
The Philadelphia Fed manufacturing index weakened to -7.5 for July from -2.2 the previous month as optimism over future business conditions deteriorated, although the orders component was at a 10-month high. The data will spark some degree of unease over industrial trends later in 2009.
The latest capital account data recorded net long-term outflows for May of US$19.8bn compared with net inflows of US$11.5bn the previous month. Chinese Treasury holdings did increase over the month, but the net outflows will maintain underlying market fears over a medium-term move away from the US currency.
In this environment, the Euro pushed to highs near 1.4170 during the day as dollar sentiment remained negative.
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Yen
Risk appetite was underpinned on Thursday to some extent by stronger than expected Chinese GDP data with a 7.9% figure for the second quarter. There was, however, a credit rating downgrade of New Zealand’s debt which triggered some reassessment of the situation and the dollar dipped back to below the 94 level in late Asian trading.
Confidence in the Japanese economy was unsettled by a weaker than expected services-sector report from Japan, although the Bank of Japan was cautiously hopeful.
Risk appetite was boosted initially by stronger than expected results from JP Morgan, maintaining the favourable earnings trends, but the dollar struggled to benefit. After a retreat to the 93.25 area, the dollar recovered to 93.80 later in New York as the yen was unable to sustain gains on the European crosses.
Technically, the dollar may be vulnerable to renewed selling pressure if it is unable to sustain the recovery back above the 93.60 support region.
Sterling
The UK currency maintained a generally steady tone during Thursday as it remained resilient, but was unable to make any strong headway either. With the US dollar still on the defensive, Sterling was able to consolidate above the 1.64 level while it drifted slightly weaker to 0.8610 against the Euro.
The IMF warned that the UK government may need to take more action to stabilise the financial sector which undermined confidence to some extent. The immediate impact will be limited while underlying risk appetite is still stronger.
The currency will face a much sterner test if there is a deterioration in international risk appetite and renewed pressure on the banking sector.
Swiss franc
The dollar was unable to regain the 1.08 level against the franc during Thursday and weakened to lows near 1.07 before staging a limited recovery. The Euro edged stronger to 1.5185 against the Swiss currency.
Further sharp dollar losses from current levels would substantially increase the risk of National Bank intervention to weaken the currency, especially if the dollar dips to below 1.06.
The Swiss ZEW business confidence index weakened to 0.0 for July from 9.7 the previous month, illustrating that confidence is still generally fragile, although the immediate impact was limited.
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Australian dollar
The Australian dollar pushed to a high close to 0.8050 before drifting slightly weaker on Thursday as equity markets also corrected weaker. Despite optimism over the past 24 hours, the overall risks still suggest that there will be a greater degree of caution surrounding the global economy which will make it difficult for commodity prices to sustain any further advance.
The latest data from the government reported that the central bank had sold close to AUD2.0bn during May. The intervention is liable to persist if the currency maintains a strong tone and this will tend to dampen the currency to some extent.
With the US currency on the defensive and risk appetite firmer, the Australian dollar was still able to strengthen to a high around 0.8070 in New York.
