A fourth-straight monthly gain for Japanese manufacturers coupled with a U.S. jobless claims report that propelled equity index futures higher was a double-dose of recovery news that proved too much for yen bulls to bear. The recovery in appetite for risk sent yen crosses surging just a day after risk aversion failed to entice safe haven buyers in to Japan as a traditional safety play. Following the release of U.S. initial claims at 8:30am in New York a wave of yen selling saw it nursing losses that instill a lack of confidence in the yen as the nation prepares for a change of government with national elections looming next month.

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Risk currencies rallied overnight after the Peoples Bank of China posted an after-hour message to its website indicating it would maintain a moderately loose monetary policy. That news came after a 5% decline for local stocks blamed on swirling rumors that the central bank might act to stem the feverish demand created by its lending activities. With fears brushed aside Chinese stocks marched 1.5% higher dragging metals and commodity prices in sympathy.

Japanese manufacturers saw industrial production gain 2.4% in June after a 5.7% May advance with this news helping lift sentiment towards a recovery. Earlier in July the Bank of Japan cited a rebound in production and trade as reasons to expect the economy to stop sliding, which in turn caused it to lift its economic appraisal for the nation. The yen started to lose its nerve in Tokyo time but it was only when initial claims were released in the U.S. that its price slid. The dollar gained to ¥95.68 from ¥94.60 just 24 hours earlier. The euro also surged from ¥133.00 to ¥134.50 while the pound made its stake clear as it rose from ¥155.00 to ¥157.80 this morning.

In yesterday's commentary we noted the apparent aversion to risk aversion plays. With risk evidently back in the saddle today, what hope now for the yen as political risk comes to the forefront. Curiously, investors expect the yen to benefit from a likely change in government, which would augur greater fiscal stimulus. For now though, few shorter-term players care for a bigger picture view and appear to be playing the short-term pessimism for all its worth. With the dollar back above ¥95.00, we expect to hear calls for an imminent move to ¥100.00 should the equity market's break-higher continue. And if it doesn't apparently risk-aversion no longer holds!

While the dollar is broadly weaker today, it is coming off an exceptionally strong Wednesday rally. The euro is stronger at $1.4062 and we're about midway into the entire range for July spanning $1.3833 to $1.4304. Euro bulls must be disappointed by the performance of the single currency for the month, failing to make headway when the equity markets have functioned well as a discounting mechanism for future growth. We still cannot help but feel ambivalent towards a euro rally at this time and simply argue that a failure to rally on what should be good news for it means that, like the yen, its prospects are worrisome. A case in point is today's EC confidence reading for the Eurozone, which at a reading of 76 outpaced the survey prediction and rose to the highest point in nine months. Such data should be potent for the euro, yet it seems to be the case that it would rather retire early and read a book in bed.

The pound responded very positively to a Nationwide home price survey blasting expectations for a meager rise in prices. The actual 1.3% rise throughout July easily outpaced a prediction of 0.2% and leaves prices lower for the year through July by 6.2%. Still at $1.6505 the pound is still running out of steam against the dollar and appears to need another dose of good news to maintain the momentum before we can start thinking about $1.7000.

The risk currencies of Australia and Canada are higher, while the New Zealand dollar is lower – and all for good reason today. The Aussie rallied to 82.61 U.S. cents, about a penny higher than Wednesday's closing price, after data showed a strong rise in residential building permits for June, which recorded a 9.3% increase. The Aussie also gained against the New Zealand dollar after the RBNZ governor provided rationale for a monetary easing ahead in the event that its current policy stance failed to deliver the trickle-down effect of easier monetary policy. The rising currency has been a blot on the landscape this year, but recent evidence of a healthier global economy have diverted such fears. The twin antipodean currencies now have asymmetric risks following the recent chest-beating from the RBA governor who feels the Australian economy might have been less damaged than feared and as a result has policy-settings perhaps too low.

The Canadian dollar continued to rally against the dollar at 92.39 today after data showed June's industrial price rose 0.7% indicating better prospects for producers. The data reverses the trend from May, which showed prices fell by 7.3% as the price of crude oil declined.