Yen

The domestic data offered no support for the Japanese currency on Thursday with the monthly Tankan manufacturing index remaining at a 5-year low while there was also a decline in the services component. In this environment, overall confidence in the Japanese currency will remain fragile which will limit currency support.

The trends in global stock markets will remain important and the defensive tone in Asian markets continued to provide some degree of Japanese currency support with the dollar around 107.55.

There is still likely to be a net flow of funds into high-yield instruments which will tend to curb yen gains and the dollar edged back to fluctuate around the 108.0 level in New York.

Sterling

The UK currency dipped in early Europe on Thursday, but found some support after the Swiss interest rate decision and the recovery accelerated following the UK data.

The latest retail sales data recorded a very sharp increase in sales with a 3.5% monthly increase for May compared with expectations of a small decline and this was the biggest monthly increase on record with an annual increase of over 8.0%.

The data is liable to have been distorted by warm weather and price discounting, but the data will ease immediate fears to some extent. Despite scepticism over the data, there will also be some increased speculation over an interest rate increase.

The personnel changes at the Bank of England with Bean replacing Gieve as Deputy Governor may also give the MPC a more hawkish stance which could increase the chances of a rate increase over the next two months.

Sterling strengthened sharply to highs near 0.7950 against the Euro and near 1.9750 against the dollar before consolidating.

Swiss Franc

The Swiss franc retained a firm tone in early Europe on Thursday, but then weakened significantly

The National Bank left interest rates on hold at 2.75% following the latest quarterly council meeting. The bank increased inflation forecasts and there was a discussion as to whether rates should be increased. The bank's reluctance to tighten despite the higher inflation forecasts is likely to spark some speculation that the bank is more concerned over domestic economic conditions.

This caution will dampen near-term franc support, especially as there had been some speculation over an increase in rates.

Concern over the global economy will still provide near-term currency support and volatility is liable to increase over the next few days. Nevertheless, the franc weakened to 1.0460 against the dollar and 1.6210 against the Euro.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar found support close to the 0.94 level during Wednesday and advanced to near 0.9480 in local trading on Thursday. The Australian currency drew support from a generally weaker US currency trend while industrial commodity prices were also stronger which provided significant backing.

There will still be a sense of unease over the domestic economy and capital flows from Japan could be in jeopardy if there is a sustained deterioration in risk appetite. Commodity currencies retained a firmer tone and the Australian dollar strengthened to highs above 0.95 in New York.

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