EUR/US$
The dollar was unable to make any headway in early Europe on Thursday and was generally trapped within narrow ranges during the day as markets struggled for direction.
There was a seasonally-adjusted decline in German unemployment for July, although the data was distorted by a change in the calculation method and the underlying figures reported an increase in unemployment. There was a further recovery in industrial and consumer confidence according to the latest Euro-zone survey evidence which will help maintain expectations of a slow improvement in the economy.
The IMF stated in comments on Thursday that the Euro was overvalued by around 15% and this put some near-term downward pressure on the currency, although the impact was transitory.
Initial US jobless claims increased to 584,000 in the latest week from a revised 559,000 the previous week as the distortions caused by the auto sector persisted. The impact should tend to put some upward pressure on claims in the near term as seasonal adjustment will expect workers to return. The continuing claims data was lower than expected which provided some relief.
The GDP data will be watched closely on Friday and will have an important impact on risk appetite. Confidence will weaken significantly if there is a larger than expected contraction for the second quarter while a smaller decline would provide an important lift to confidence.
The Euro again found support near the 1.40 level against the dollar following the IMF comments and rebounded to the 1.4070 level as Wall Street advanced.
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Yen
In comments on Thursday, Bank of Japan member Noda remained cautious over the corporate financing outlook which will maintain expectations that the bank will retain a highly-expansionary monetary policy.
Chinese bank officials also pledged to maintain a loose monetary policy to help support the economy which underpinned risk appetite to some extent and the yen consolidated around the 95 level against the dollar in early Europe.
As confidence remained firmer, the dollar pushed to highs near 95.80 during the New York session as month-end flows into the yen also faded.
Sterling
Sterling found support below the 1.64 level against the dollar on Thursday and pushed to a high above 1.65 following the latest economic data.
A further increase in house prices in July according to the latest Nationwide survey also helped boost the UK currency. There was a monthly increase of 1.3% with prices now having risen for three months in succession which cut the annual decline to 6.2%.
Sterling will gain some further support from expectations of a housing-sector recovery which should also help support near-term consumer spending, although underlying debt fears will remain an important issue.
Degrees of risk appetite will also remain a key Sterling influence and a more optimistic tone helped underpin the UK currency.
Swiss franc
The dollar pushed to a high of 1.0930 against the Swiss franc during Thursday, but was unable to break Wednesday’s highs and weakened back to 1.0875 in New York. The Euro edged stronger to the 1.53 level against the Swiss currency.
There were no further comments on the franc from National Bank officials, but the intervention threat will remain an extremely important market factor.
The KOF business confidence index will be watched closely on Friday and a weaker than expected improvement in the index would tend to undermine franc sentiment.
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Australian dollar
The Australian dollar found support in the 0.8120 region against the US currency on Thursday and was generally stronger in local trading. The Chinese commitment to low interest rates helped trigger renewed support for high-yield assets.
It remains the case that there is likely to be firm buying Australian support on retreats as underlying sentiment towards the currency is still firm. As risk appetite improved during the day, the Australian currency strengthened to highs near the 0.8290 level in US trading.
