EUR/USD
The Euro was blocked in the 1.3350 region against the dollar in early Europe on Thursday and retreated steadily during the European session and a break of support levels around the 1.33 region helped trigger losses towards 1.3250.
Technical considerations were again important and there were also choppy capital flows associated with the approaching quarter-end.
There were further concerns surrounding the Euro-zone outlook with a particular focus on Spain and Italy. Spain’s general strike and uncertainty ahead of Friday’s budget presentation had a significant negative impact on sentiment. There were also fresh concerns surrounding the Italian outlook as yield spreads over German bunds also widened.
There was also a renewed deterioration in business confidence which reinforced growth doubts and offset the impact of a larger than expected decline in German unemployment, especially as it maintained concerns that the peripheral divergence would continue over the next few months. The dollar also gained some support on the latest OECD report which suggested that the US economy would out-perform Europe. These fears were offset by optimism that EU leaders would agree to a stronger set of support funds at their meetings on Friday and Saturday.
The US GDP data was in line with expectations at 3.0% for the fourth-quarter final reading. Jobless claims were higher than expected at 359,000 for the latest week from a revised 364,000 previously which also cast some doubts over the US outlook as it maintained the run of slightly weaker data releases.
The dollar was unable to gain further support on yield grounds and also failed to sustain the advance against the Euro as it retreated back towards the 1.33 area on expectations that US interest rates would stay very low and there was a further advance to back to the 1.3350 region in Asia on Friday.
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Yen
The dollar maintained a negative tone during European trading on Thursday and tested lows just below the 82 level against the Japanese currency early in the US session.
There was further speculation that last-minute year-end capital flows were boosting the yen. The currency also continued to gain some degree of support from weak equity markets as global growth doubts remained an important focus.
The dollar regained some ground later in the US session, especially after the Japanese Finance Ministry warned that it was on guard against rapid yen rises. The latest Japanese data was mixed with stronger reading for household spending and a slightly higher PMI reading offset by a surprise drop in industrial production. In choppy trading, the dollar retreated back to the 82 region.
Sterling
Sterling drifted weaker in Europe on Thursday with the latest data releases providing no support. The UK mortgage approvals data was sharply weaker than expected with a decline to 49,000 for the month from 58,000 previously. There was also a decline in the latest Nationwide house-price index with a -1.0% decline for the month following a revised 0.4% gain the previous month which reinforced expectations that the ending of tax reliefs was undermining housing-sector support and revealing underlying vulnerability.
There was a solid reading for consumer lending, but a sharp decline in money supply reinforced fears surrounding bank lending. The net impact was to increase speculation that the Bank of England would have to resort to further quantitative easing over the next few months.
Sterling found support on dips towards the 1.5850 area and rallied again on a wider US retreat and was again approaching the 1.60 region in Asia on Friday despite a slightly weaker consumer confidence reading.
Swiss franc
The Euro was again unable to make any impression on the franc during Thursday, although it did recover from lows below 1.2050 and there will inevitably be speculation that the National Bank was intervening. The dollar moved towards the 0.91 region against the Swiss currency, but was still finding it very hard to make significant progress.
The latest KOF business confidence reading will be watched closely on Friday to assess corporate sentiment and how much pressure there will be for the franc to be weakened further in order to provide support for the industrial sector.
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Australian dollar
The Australian dollar remained under pressure for much of Thursday and dipped sharply to lows near 1.03 against the US currency. There were rumours of a double no-touch option at the 1.03 level which markets tried to break and underlying sentiment also remained negative on regional growth doubts.
The currency rallied alter in the US session as there was a general dollar retreat and a covering of short positions as support levels held. This trend continued in Asian trading on Friday and there was a move back to just above 1.04 as equity markets attempted to recover, although there was still a high degree of caution.
