The US dollar rose against the euro and Japanese yen after US data boosted expectations the economy is recovering, raising optimism that US interest rates will rise sooner rather than later. The US Labor Department reported that initial claims for jobless benefits fell to 514,000 in the latest week. Markets were expecting claims of 525,000.
The euro fell against the US dollar on comments from European Central Bank President Jean-Claude Trichet, repeating that the euro was not created to be a global reserve currency, adding to the dollar's appeal in the short term.
Sterling extended its gains across the board, rising more than two percent on the day against the dollar and the euro and nearly three percent against the yen. The pound has benefited from Bank of England policymaker Paul Fisher saying quantitative easing is now working. The comments prompted investors to cover short positions in the pound.
The Japanese yen weakened against the US dollar after US weekly jobless claims came in lower than expected while consumer prices, excluding food and energy, edged up more than forecast. The US dollar/yen pair is reacting in terms of the yen losing some ground on the idea that this should be supportive for equity markets and supportive for risk appetite.
The Canadian dollar slid against the US dollar and backed off a near 15-month high reached overnight ahead of Canadian consumer prices data for September due Friday and next week's Bank of Canada rate announcement, when investors will look closely for clues about the timing of the next rate hike.
The Australian dollar rose to fresh 14-month highs after Australia's central bank chief flagged more rate increases, leading some investors to speculate on the likelihood of steep interest rate rises as early as next month. Reserve Bank of Australia (RBA) Governor Glenn Stevens said that holding interest rates at very low levels was no longer needed as a recovery takes hold, and he would not be timid in removing some of the monetary policy stimulus. The New Zealand dollar hit a 15-month high as stronger than forecast inflation data raised the prospect of interest rate rises sooner than expected. Another positive boost for the kiwi came from a survey showing the manufacturing sector expanding for the first time in well over a year, another piece of evidence pointing to the economy emerging from recession.
10-Year Treasury Note Yield: 3.427%
Dow Jones Industrial Average: 9,996.67 -17.00