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European Session – Dollar resurfaces above 120 yen after US Q2 GDP revised up

There was an improvement in the broader market sentiment on Thursday as concerns over China eased. This helped global equity markets to rally. Adding to risk appetite were hopes that US interest rates would stay low for a bit longer after comments by New York Fed President William Dudley on Wednesday, who said a September rate hike was less compelling.

Demand for safe havens like the yen diminished today, helping the dollar rise back above the key 120.00 yen level. Also helping lift the dollar was US GDP data which showed the economy grew faster than initially thought in the second quarter.

The second estimate of second quarter US GDP came in at a 3.7% annual rate, which was a bigger expansion than the initial estimate of 2.3%. Some analyst projections were for growth to be revised up by 3.2%.

Separate data showed initial jobless claims were down for the first time in five weeks. Applications for unemployment benefits fell 6,000 to a seasonally adjusted 271,000 for the week ending August 22nd. Economists had forecast claims falling to 274,000 last week.

US Treasury yields and the greenback rose after the GDP and jobs data. Against the yen, the dollar climbed back close to the high of the day when it peaked at 120.63 yen, well above Monday’s seven-month low of 116.19.

The euro underperformed again today, to extend its decline against the dollar. It reached a low of 1.1224, moving further off a seven-month high of 1.1713 hit earlier this week. The single currency was already hit hard on Wednesday after dovish comments from ECB policy maker Peter Praet who considered QE expansion an option if Eurozone inflation was at risk by the recent turmoil in financial markets due to China. The euro is now vulnerable ahead of next week’s ECB policy meeting.

Sterling mirrored the euro’s moves and also declined against the broadly stronger dollar to reach as low as 1.5398. There were no major UK data releases today but near term risk lies with Friday’s publication of second quarter GDP (second estimate), expected unchanged at 0.7% Q/Q. Meanwhile, Bank of England Governor Mark Carney will also be speak late on Friday.

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