British pound, Japanese yen react to domestic data
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The dollar recovered against major currencies on Thursday after a report showed U.S. claims for jobless benefits declined in the latest week, signalling some improvement in the economic outlook.
The U.S. currency traded lower before the data on first-time and continuing claims, as its direction has been driven largely by improving risk sentiment this week, as signaled by equities and commodities.
The dollar index DXY -0.09% , a measure of the U.S. unit against a trade-weighted basket of major rivals, climbed to 75.501, up from 75.438 in late North American trading Wednesday.
The euro EURUSD +0.0070% fell to $1.4223, off from a high at $1.4306 and compared to $1.4233 late Wednesday. See real-time currency quotes and tools
The dollar gained support after the Labor Department said initial jobless claims fell to 409,000 in the latest week, a lower reading than analysts expected. See story on U.S. jobless claims
The dollar index remains up 3.5% this month after commodity-oriented currencies and the euro retreated sharply in the early-May commodity crash.
The euro, meanwhile, remains under pressure from Europe’s sovereign-debt problems, including concerns about divisions between some European Union policy makers and the European Central Bank over restructuring Greece’s debt.
That leaves the shared currency vulnerable to further weakness and investors in European bonds are losing faith that policy makers — political and monetary — have the will to solve the problems, said Kathleen Brooks, research director at Forex.com.
European Central Bank officials on Wednesday had criticized any effort to let Greece extend maturities or otherwise restructure sovereign debt as potentially disastrous for the banking sector. That followed comments from EU officials earlier in the week that opened the door to a potential “soft restructuring” or “re-profiling” of Greece’s debt. Read about ECB, Greece restructuring.
Brooks noted that Spanish government bonds, which had previously been immune to upward yield pressure, have been trending higher and that Sunday’s local and regional elections in Spain will be a key test of public support for the government’s austerity measures. Read about Spain’s elections and what the outcome might mean for Prime Minister Zapatero.
“If the public show resistance to the cuts, this could unsettle bond investors even further, which would likely weigh on support for the single currency,” she said, in emailed comments.
Japanese GDP, U.K. retail sales
Also Thursday, the U.S. unit extended gains on the Japanese yen, after data showed Japan’s economy contracted more than expected in the three months through March due to the devastating earthquake, tsunami and nuclear crisis, pushing it back into recession.
The Japanese economy shrank at an annualized pace of 3.7% in the interval — almost double the margin economists had expected, as the March 11 earthquake and tsunami exacted a big toll. Read more Japan GDP report.
Against the Japanese currency, the dollar USDYEN +0.5756% rose to 82.15 yen from ¥81.58 Wednesday.
The yen weakened “as an improved tone to financial markets and sharply [lower] Japanese growth figures encourage outflows,” said currency strategists at Brown Brothers Harriman.
During European trading, the British pound spiked after the Office for National Statistics said retail sales volumes jumped 1.1% in April, more than expected, though this was attributed to “unusual” factors including the royal wedding and warm weather. See more on British retail sales.
Sterling GBPUSD -0.0309% rose as high as $1.6207, up from $1.6149 Wednesday. It then drifted down to $1.6160.
