by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar was unable to make a fresh challenge on 1.3410 against the Euro and weakened to lows around 1.3470 before a recovery back to 1.3450 in choppy trading. The Euro secured further support from buying interest on the crosses with renewed Euro/yen buying.
First-quarter US GDP growth was revised down to 0.6% from the original 1.3%. A larger reported drop in inventories and a weaker trade report contributed to the downgrade while consumer spending held firm.
There was a small fall in jobless claims in the latest week while the Chicago PMI manufacturing survey rose strongly to 61.7 in May from 52.9 the previous month. There will be greater optimism that the manufacturing sector is rebounding and the Friday data will be watched closely to assess whether this confidence is justified.
The Chicago PMI prices index was the highest for 10 months while the core GDP deflator was running at 2.2% which will keep the Federal Reserve on inflation alert, especially if there is a firm PCE core inflation figure on Friday.
The German unemployment rate edged higher to 9.2% in May from 9.1% in April while there was a small 3,000 increase in unemployment. This is the second consecutive month where the employment data has been weaker than expected and will raise some doubts over German economic strength. The near-term impact should still be limited with the ECB set to increase interest rates in June. Interest rate expectations are still liable to be lowered slightly which will curb Euro gains.
The yen weakened to near 121.90 against the dollar on Thursday and also depreciated to near 164.0 against the Euro.
There was a firm tone for global stock markets which dampened short-term demand for the Japanese currency on defensive grounds with renewed interest in carry trades. Short-term yen fluctuations are likely to remain strongly correlated with stock market moves.
The latest capital account data recorded strong net inflows in the latest week with a flow of funds into Japan and reduced investment overseas. The recent capital account trends have not supported the case for yen depreciation against major currencies and will increase the risk of a sharp yen correction stronger.
Sterling found support close to 1.9730 against the dollar on Thursday and pushed to highs above 1.98 while the UK currency also found support beyond 0.68 against the Euro.
The latest Nationwide house-price survey recorded a 0.5% increase in May with a 10.3% annual increase, although regional variations are increasing. Mortgage approvals fell to 107,000 in April from 113,000 the previous month, the lowest reading for the year.
Net consumer lending slowed significantly over the month while consumer credit growth was the slowest for 10 years. The data overall will maintain expectations of an underlying slowdown in the economy and dampen Sterling support.
The CBI retail survey recorded a slowdown in sales growth, but consumer confidence improved. The firm pricing surveys will maintain inflation unease within the Bank of England, especially if there is a strong CIPS index inflation component on Friday.
The franc was unable to break 1.6450 against the Euro on Thursday and weakened back to 1.6490 with the Swiss currency settling close to 1.2250 against the dollar.
The first-quarter Swiss GDP data recorded a 0.8% increase and 2.4% annual growth, maintaining the run of impressive Swiss data over the past month. Expectations of a tough National Bank policy in June will also continue to provide franc support, especially if there is a high consumer inflation report on Friday.
The Swiss currency will remain vulnerable to selling pressure if there is a sustained increase in global stock markets. Overall, however, there is very little value in carry trades at current levels and the franc should be able to resist heavy selling pressure.
The Australian dollar found firm support below the 0.82 level against the US dollar on Thursday and rallied to highs around 0.8250 in local trading on Thursday with further gains to 0.8290 in New York
The trade deficit for April was slightly higher than expected at AUD0.96bn, but the data failed to have a significant impact. The private credit growth data was firm with a 14.5% annual increase which will maintain near-term confidence over the Australian economy and the possibility of higher interest rates.
The recovery in global stock markets will also help support the Australian dollar in the short term with renewed interest in carry trades.