The US dollar eventually recovered from data-induced losses after a typically dovish Federal Reserve member said that he saw potential scope for less monetary stimulus by the summer and an exit from the Fed’s QE programme towards year-end. The highflying US dollar had lost ground earlier following US data showing a spike in jobless claims to the highest level in six weeks, weaker inflation, and a surprise contraction in business conditions in a regional survey. However, the US dollar staged a late session rebound after John Williams, president of the San Francisco Fed, sounded optimistic on the US labour market outlook and underlined views that if it continued to strengthen it could pave the way to a reduction in stimulus. Solid data on Japanese factory activity has done little to support the yen which remains near multi-year lows, while the euro also remains under pressure after data earlier this week showed the eurozone stuck in recession now for six consecutive quarters.
Sterling
Sterling held relatively steady after dropping on Wednesday to six-week lows against the US dollar. The pound has found support from the Bank of England’s latest Quarterly Inflation Report, which included an upgrade to Britain’s economic growth outlook. However, sterling continues to be undermined by uncertainty regarding Britain’s future in Europe, as fallout from a planned referendum on the country’s EU membership continues.
US dollar
The US dollar fell from late July 2012 highs against a currency basket after weak employment data dampened rising optimism about the US economy. The report snapped a string of uplifting news on the labour market that had fanned hopes of less Federal Reserve stimulus in the months ahead.
Euro
The euro struggled close to six-week lows against the US dollar, with ongoing bearish sentiment towards the single currency reinforced by disheartening news on euro area economic growth. Furthermore, data confirmed consumer prices across the 17-member group increased just 1.2 per cent in April (y/y); a three-year low, and it is being seen as giving the European Central Bank freedom to ease policy further. The eurozone’s first quarter contraction stretched recession to six consecutive quarters, marking the longest, though not the deepest, period of contraction on record. Nine euro zone countries, including the second biggest, France, are now in recession. The latest data out of Europe dealt a setback to recovery hopes, piling more pressure on central bankers to take additional pro-growth measures. Consequently, the euro for now may struggle to reach a bottom ahead of next week’s key PMI surveys.