Dollar and yen rose against a basket of currencies on Wednesday as news that China would limit industrial overcapacity raised concerns over the sustainability of the current economic recovery and offset the positive impact of data showing a jump in new U.S. home sales. Although U.S. durable goods orders surged in July, the orders of non-defense capital goods excluding aircraft, which is a key measure of business demand, fell in July, suggesting challenges remain on the path to recovery. Dollar jumped to an intra-day high of 94.59 after the release of U.S. new home sales, which rose 9.6% m/m or to 433,000 in July, much higher than economists' expectation of 390,000.
The British pound declined across the board on Wednesday after 2-year U.K. government bonds fell to a record low, making short-dated British debt less attractive than its counterparts. Lower short-term U.K. yields pressured cable to a six-week low of 1.6160 in New York morning. In addition, the pound dropped to a multi-week low of 0.8808 versus the single currency as a strong reading of German Ifo business sentiment boosted the euro against sterling. German Ifo index in August came in at 90.5 versus the forecast of 88.9 and well above the upwardly-revised reading of 87.4 in July. Euro rose to 1.4354 against the dollar following the upbeat Ifo data, however, the single currency tumbled to 1.4205 in New York morning trade.
The Japanese yen strengthened against higher-yielding currencies after Chinese officials said that it would take steps to curb redundant investment in a range of industries, increasing demand for the yen as a safe-haven asset. Active cross selling in sterling versus yen pushed gbp/jpy to as low as 152.26 while eur/jpy dropped from 135.20 to 133.90 and aud/jpy declined from 78.99 to 77.75.
Data to be released on Thursday include New Zealand trade balance, export and import data, German Gfk data, U.K. CBI distribution trade, U.S. GDP, PCE Q/Q, jobless claims.