by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The Euro again made a push towards the 1.60 level against the dollar on Thursday, but was unable to sustain the advance and was generally weaker in New York trading.
Euro-group head Juncker stated that the markets had not understood the G7 message on exchange rates. These comments temporarily pushed the dollar stronger on renewed speculation that there could be a decisive move to intervene and support the US currency. The more likely outcome for now is that they concentrate on verbal intervention to keep dollar selling in check, but there will be reservations over pushing the Euro aggressively higher.
The US Philadelphia Fed index was significantly weaker than expected with a decline to -24.9 in April from -17.4 the previous month. There was, however, a significant improvement in the six-month business expectations index which will spark some optimism over a recovery during the second half.
Jobless claims edged higher to 372,000 in the latest week from 355,000 previously, although there will be relief that claims held below the key 400,000 level.
The Federal Reserve stance on interest rates will be an increasing focus ahead of the late April decision. Although markets are expecting a further cut, the risk of divisions was illustrated by comments from Fed Governor Fisher. He stated his strong reluctance to further monetary easing which suggests that he will not back further cuts and market expectations may shift slightly. A slight shift in the yield structure will provide some dollar support.
The dollar found support below the 101.80 level against the yen on Thursday and secured a firmer tone over the day.
Domestically, the monthly Tankan index weakened to a 5-year low for April which will maintain a lack of confidence in the economy. There are, however, reduced expectations that the Bank of Japan will cut interest rates in the near term and this may provide some degree of support to the currency.
Results from the US investment banks were again under closely scrutiny and there were no major negative surprises. Overall risk tolerances remained higher during the day and this maintained a weaker tone for the Japanese currency with the dollar challenging the 102.70 level in US trading.
There was no fresh economic data during Thursday, but there was further speculation that there would be an agreement between the government and Bank of England over support measures for the mortgage sector. Any credible agreement would underpin Sterling on an easing of fears over the housing sector, especially with reduced expectations that the central bank will have to cut interest rates rapidly.
Bank of England Chief Economist Bean stated that growth was likely to slow further, but he also warned that inflation was likely to rise above the 3.0% level. Given the stimulus from a weaker currency, the remarks suggest a reluctance to cut interest rates aggressively which will curb short-term Sterling selling.
The overall improvement in risk appetite also provided some degree of support to the UK currency even though confidence remained fragile.
Sterling found support near 0.81 against the Euro and strengthened sharply to highs near 0.7975 in US trading while it also rallied to highs above 1.99 against the dollar.
The dollar again found support below the parity level against the franc and strengthened to highs near 1.0090 in US trading. The Swiss currency also tested the 1.60 level against the Euro for the first time since late February.
Swiss retail sales rose an adjusted 3.3% in the year to February, but the ZEW economic expectations index remained at a depressed level of -71.4 for April which was little changed from the previous month.
National Bank President Roth stated that the economic risks were to the downside even though he expected growth to remain relatively robust. He also remarked that the franc over the past few months had corrected some of the recent weakness against the Euro. Markets will be expecting interest rates to be left on hold in the short term.
The US dollar weakness was a significant factor in local trading on Thursday while there was further strong support from the extended gains in commodity prices. The Australian dollar pushed to highs near 0.94 against the US currency.
Fear over inflation has dampened speculation that the Reserve Bank will be in a position to cut interest rates over the next few months. The overall risks to the domestic economy are, however, liable to increase which will have a negative impact on sentiment. The Australian currency held firm during Thursday, but dipped back to 0.9370 in New York as the US dollar rallied.