Dollar fell versus a basket of currencies and the Japanese yen gave up some of its recent gains on Thursday as risk appetite improved, with the number of Americans filing for initial jobless benefits eased concerns over the U.S. economy and encouraged demand for higher-yielding assets. Chinese State Councillor Dai Bingguo on the second day the three-day G-8 summit unequivocally called for the world to diversify the reserve currency system in order to have relatively stable exchange rates but he did not name the dollar directly. In addition, Frech President Nicolas Sarkozy said that he hoped to talk about currencies (referring to the dollar) and international monetary system in the coming months.
Earlier in the day, Japan Chief Cabinet Secretary Takeo Kawamura said that excessive currency moves are undesirable as they would hurt the stability of Japna’s economy and the financial markets. His comments were deemed as a form of verbal intervention leading the dollar to rebound versus the yen from its multi-month low of 91.80 formed on Wednesday to as high as 93.60. The Japanese yen weakened against high-yielding currencies on Thursday. Euro, aussie and sterling rose against the yen to 130.88, 73.36 and 152.35 respectively in New York afternoon.
Euro rallied against the dollar on Thursday. European Central Bank Governing Council member Ewald Nowotny said Europe could return to growth rates of 2-3% after 2011. However, Nowotny indicated that the downturn was not over yet as growth would only be feeble with unemployment in the eurozone possibly rising to more than 10%. German Finance Minister Peer Steinbrueck said the Germany's Central Bank could be used to buy up corporate bonds to help ease a squeeze on credit markets. The single currency rose to as high as 1.4008 after the release of better-than-expected U.S. jobless claims data (565,000 compared to economists' forecast of 605,000) but euro retreated on long liquidation. Euro found good buying interest on dips and extended its intra-day rally against the greenback to 1.4074 before easing later in the day.
The British pound rebounded strongly from a one-month low at 1.5983 against the dollar and euro on Thursday partly due to news that IMF upgraded the U.K.'s growth forecast for 2010 to 0.2% from -0.4%. In addition, Britain's goods trade deficit (Non-EU) narrowed to 3.26 billion pounds in May fm 4.14 billion in April. Sterling rallied after Bank of England surprised the markets by announcing no expansion of its 125 billion pound quantitative easing (qe) scheme for now, relieving concerns that the inflationary policy would be continued but it will review the operation at its August meeting. BoE left interest rates unchanged at a record low of 0.5% for a fourth month running. BoE stated that Britain’s economy is no longer free fall, however, bank lending remains weak and a sustained recovery is far from assured. Cable extended its rise to as high as 1.6381 in New York afternoon before easing due to profit taking.
Data to be released on Friday includes Japan CGPI, German WPI, UK PPI, Canada unemployment rate, trade balance, U.S. trade balance and University of Michigan confidence survey. U.S. Treasury’s Geithner will testify at 14:00GMT.