The dollar rose and fell during a volatile morning but  was trading  lower by midday. Initially the greenback strengthened after China announced negative growth stats which increased skepticism in the strength of the global recovery and safe haven demand. Chinese GDP came out less than expected at 10.3% versus 10.5% last month. Other data also supported the idea of a slowing Chinese economy, as June Retail Sales come in slightly lower than the prior month and below expectations. However, Industrial Production beat analyst’s forecasts so not all the data was bad. Given the active attempts of the Chinese government to actually cool the economy these stats may not be too surprising. The release of the June FOMC minutes showed policymaker’s downgraded economic forecasts for 2010 slightly as a number of members saw additional risks to the economy. Markets rebounded however, on the positive news of the successful 3bn Spanish government bond issue and stellar earnings results for JP Morgan, as a result the dollar  began falling  mid -morning. Employment data will be the next market moving piece of data still to come latter today during the US session. As of midday the greenback was down to $1.2815 against the euro and ¥88.50 against the yen.

   The euro gained this morning after a successful Spanish bond auction renewed confidence in the ability of peripheral euro zone states to raise money. This also comes after the two successful bond issues by Portugal and Greece earlier in the week. Then better-than-expected second-quarter earnings results from JP Morgan  helped give a fillip to the markets after poor economic data from China began a migration from risk. The Spanish Treasury sold the maximum intended 3 billion of a 15-year government bonds. A French auction was held after Spain's, and was also well received, with France issuing almost all of the amount announced and healthy bid-to-covers. Still, market participants remained skeptical about whether or not the gains can be sustained. The euro was flying at lunch time - up at $1.2815 against the dollar and ¥112.95 against the yen.

   The pound rose to a 2-month high yesterday after UK employment data showed encouraging green shoots and this morning sterling continued its rally as successful bond auctions in Europe and positive earnings results from JP Morgan led investors away from safe havens and into riskier currencies again. At midday sterling was up against the dollar at $1.5266 and down to the euro at £0.8352.

   The yen traded lower on Thursday as Wall Street woke up to positive earnings news and lessening euro zone fears encouraged investors to re-embrace risk. BOJ maintained its interest rate at 0.1%, putting policy adjustments on hold, as the economy is expected to stay on a recovery track on the back of healthy exports and a pickup in domestic demand. However, this doesn’t seem to have affected the yen as the risk-demand relationship seems to be a stronger influence on its price at the moment. At midday the yen stood at ¥88.50 to the dollar – down slightly and was down against the euro to ¥112.95 .

Analysis prepared by:

Joaquin Monfort
Forex4you analyst