The dollar has taken its cue from yesterday's solid economic data and has moved higher overnight. This time however, it is the euro that is suffering while the yen largely holds its position.

U.S. second quarter

GDP

(

definition |

chart |

source

) came in at 5.2%, well above the anticipated 3.7%. This strong number keeps alive expectations of a possible further hike in interest rates in August.

The dollar added to its overnight gains after the data.

Dollar/yen is firmer at 109.35. Japanese economic data released this morning suggest a slow domestic recovery. Industrial output grew 1.7% in June but offsetting this positive news was other data showing unemployment higher and personal spending lower. Consumer prices in the Tokyo area fell 0.9% in July, the 11th-consecutive monthly decline.

A further 2% overnight fall in the stock market added extra reason to be cautious about the Japanese economy. Not helping the yen was another set of accusations of corruption against a top official of the ruling

LDP

.

Clearly there is nothing in the current picture of the Japanese economy to indicate that an interest rate rise is called for.

The euro opened substantially weaker, at $0.9240, after closing yesterday at $0.9325.

Euro-zone M3 money growth for the year to June was 5.4%, lower than expected.

French unemployment fell to 9.6% in June, the 10th successive fall. General business confidence also rose.

Economic data from Ireland is continuing to be out of line with other euro zone countries. Today, retail sales for May were reported as up 0.6% in the month, for a year-on-year rise of 20.3%.

"The real situation here is that the euro has lost all upside momentum," said Mark Henry of

GNI Capital

in London. "It's a reaction to failing to move beyond 94 cents yesterday morning."

The trend in the euro/yen cross is in favor of the yen and the euro has fallen back from last night's close at 101.85 to open at 101.10. "The risk is on the downside for euro/yen also," said Henry who sees the euro as undercut by weaker-than-expected data. "The feeling is that any euro rally in the short term is a good selling opportunity."

Dollar/Swiss franc is more than a centime firmer, at 1.6710. The euro/Swiss franc rate is lower, at 1.5475.

The pound is also lower vs. the dollar, at $1.5020, down 80 points overnight. Euro/sterling is steady, at 61.50 pence.

Comments by the incoming

Bank of England

Chief Economist,

Charles Bean

indicated that a 50 basis-point interest rate rise in the U.K. was," quite possible."

The Canadian dollar is at one-week lows at C$1.4735, continuing yesterday's pullback. The concern is that strong U.S. data will weaken the Canadian dollar by suggesting a widening of interest rate differentials.

The Australian dollar is steady at lower levels, at about $0.5860. The possibility of further rate hikes in Australia is giving some support to the currency.

The New Zealand dollar is lower, at $0.4575.

The South African rand is weaker, at 6.94.

The Polish zloty is slightly off, at 4.33 per dollar, but has made headway against a weaker euro.