Dollar Softer; Sterling Underperforms

The U.S. dollar was mostly softer Thursday, though within Wednesday's ranges as market participants await the European Central Bank's press conference and U.S. economic data.

Sterling was underperforming perhaps being impacted by the softer string of recent data, including Thursday's construction PMI (52.1 vs 53.2 consensus and July's 54.1) and the fifth consecutive monthly decline in Hometracks' house price index. The euro is firm, but like Wednesday the band of resistance in the $1.2850-$1.2875 may prove sufficient to check upticks ahead of Friday's U.S. employment report.

The dollar remains pinned near recent lows against the yen, but the momentum remains stalled. Range trading between JPY83.50 and JPY85 looks set to continue. Emerging market currencies are generally firmer as the recent string of data, especially Wednesday's better-than-expected China and U.S. purchasing managers' reports.

The strong U.S. equity advance Wednesday helped underpin Asian markets Thursday. The MSCI Asia-Pacific Index's 1.1% advance lifted the benchmark to a new two-week high. The Philippine's market led the way with a 2% advance to reach its best level since December 2007. News that Chinese auto sales rose 59% in August, three times July's pace, helped the auto shares in the region.

Foreigners were mostly net sellers of Asian shares during last month's down draft, but appear to have returned to the buy side. European bourses were narrowly mixed after posting the biggest gain in more than three months Wednesday. The raw material and technology sectors were generally stronger, largely offsetting the losses in telecom and health care.

The decline in pessimism over the global economic outlook is sparking a backing up in bond yields. European bonds yields were mostly 3-5 basis points higher. The new supply from Italy, France and the U.K. was absorbed without much problem and most peripheral spreads are coming in a couple of basis points, though Greece is an exception.

Sweden's Riksbank hiked the repo rate 25 basis points to 0.75%. Surveys favored a hike by roughly 3 to 1, but the krona has marginally extended Wednesday's gains against both the dollar and euro.

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