The dollar has come out fighting on Wednesday but it's not going far with a toy sword and shield. There's no change in the bigger-picture change in sentiment as analysts mull the notion of a repeat of the Bernanke stimulus now the thought has been publicly aired. The moderation in the health of the U.S. economy will remain center stage, while the dollar's best effort of a rally this morning seems largely reliant on a pullback in equity prices around the world as investors respond to a peak for international PMI services sector data. It seems that investors have become attuned to stellar corporate earnings, a fact which is somewhat sterilizing the appeal of the latest bout of risk appetite.


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U.S. Dollar - A gain for the dollar came as other units appeared to regroup on the charts. The pound and euro faced technical challenges in the form of stalling momentum forcing them to drift sideways to lower. That gave some credence to a revitalized dollar index. However that's now flown out the window. The dollar faces the headache this morning of an ISM non-manufacturing survey, which since it represents the larger services sector of the economy has the capability of unseating the dollar today. The market is primed for continued expansion but at a slacker pace. If recent evidence is anything to go by, any undershoot will sour appetite for the dollar. Also on the agenda today is the ADP private sector employment report, which sandwiches initial claims data ahead of the key non-farm payroll report on Friday.

Japanese yen -The yen continued to power forward against the dollar and reached ¥85.32 earlier. Investors remain more cautious about the global recovery according to the ascent of the yen, which typically rallies on safe haven woes. The worry that the Fed may resume bond purchases after next week's FOMC meeting continues to weigh on the value of the dollar.

Aussie dollar - Demand for the Aussie returned after a couple of key pieces of evidence boosted confidence that the domestic economy was faring well regardless of worries elsewhere around the world. The unit just put in a fresh high for the session after breaking key resistance at 91.50 U.S. cents and raced to a peak at 91.68 cents. Strong Chinese demand for iron ore and coal through June drove the trade surplus to a record A$3.5 billion, while earlier data was also revised sharply higher. The June surplus was twice the market forecast. Meanwhile the HSBC services PMI for China rose to 56.3 and confirms the earlier official non-manufacturing PMI reading of 60.1 for July after a June reading of 57.4. Clearly, regional growth is a huge factor for Australia and this latest turnaround for China confounds the pessimistic view that the domestic authorities would attempt to engineer too much of a slowdown.

Euro - The euro drifted overnight with a lack of impetus for further gains caused mild profit-taking to as low as $1.3183. The single currency has subsequently rebounded to $1.3222 after a mild dip in the Eurozone services PMI, while the composite PMI reading at 56.7 was unchanged on June data. Meanwhile consumers continued to spend during the month of June but retail sales data was unchanged between months, while May data received a neat bump higher with final data coming in twice as strong as originally reported. German services continued a robust expansion as did those in France and the minor downturn apparent in today's report for each shouldn't be a surprise after the heights reached in the second quarter.

British pound -The pound eased to $1.5892 before revving up for another push back to $1.5961. Banking stocks are providing first hand evidence of a sustained recovery. Earlier in the week Europe's largest bank, HSBC reported healthy profits and today it as the turn of Lloyds TSB who spun a profit for the first time in two years. An index of home prices from its mortgage lender, Halifax showed an unexpected monthly 0.6% gain despite predictions for a 0.3% contraction. However, the nation's PMI services index did take an unexpectedly large nudge lower from 54.4 in June to a July reading of 53.1. Once again, expansion albeit at a lower pace.

Canadian dollar - Although the loonie was slower to respond, the Canadian dollar strode forth after the jump in the Aussie. The local dollar recovered from 97.40 U.S. cents to 97.89 after ADP reported a 42,000 increase in private sector U.S. jobs for July.

Andrew Wilkinson

Senior Market Analyst       

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