By Joe Manimbo of Travelex
NEW YORK (
) -- The bright spots are few and far between for the dollar as its major rivals find themselves sharply higher this morning.
The euro continues to benefit from positive developments in local debt markets as Spain successfully went to the well for a 3.5 billion euro sovereign debt issue, and a second, shorter-term tender offer by the European Central Bank was well received.
The combined events are boosting the single currency this morning, though the fact that private-sector European banks still have to rely on the ECB for liquidity, as opposed to the market, should keep the excitement contained. The Swiss franc was a big winner overnight as well.
The yen continued higher this morning, reaching new highs for 2010 against the greenback. It again neared an eight-and-a-half year high against the euro.
The yen's appreciation seems to be unnerving Japanese policymakers, who overnight warned that the yen's recent strength could very well undermine the tenuous economic recovery underway in Japan. This was on the heels of a positive report on Japanese manufacturing sentiment.
The Swiss franc continues to benefit from the Swiss National Bank's retreat from its campaign of weakening its currency two weeks ago, as well as from safe-haven flows prompted by news that manufacturing activity in China had slowed in June.
The news out of China also undermined the so-called commodity currencies this morning, particularly those of Australia and New Zealand. The Canadian dollar's gains were also limited because of the news.
Sweden joined the ranks of central banks tightening monetary policy on Thursday as the Riksbank announced a 25-basis-point hike. The Kronor was marginally firmer on the news.
Today is Canada Day and thus a holiday north of the border, though the U.S. data train rolls on.
: The single currency has firmed back near one-week highs against the buck as markets continue to favorably digest the combined results of yesterday's 132 billion euro tender from the European Central bank and today's 111 billion euro tender.
The ECB announced that 78 banks took part in Thursday's issue of short-term funds. 171 institutions had taken part in Wednesday's operation. Expectations for both the number of participating banks and the amount that the banks would require had been higher, which is leading traders to believe that the state of eurozone banks may not be as dire as initially thought.
The fact that banks in the eurozone are unable to finance their operations without the assistance of the ECB should remain a big concern and should keep the euro's upside limited until things return to some level of normalcy -- i.e., when banks can draw liquidity from the market, as opposed to the government.
: Chinese manufacturing activity as measured by the PMI survey expanded at a slower-than-expected pace in May, though it still registered a 16th consecutive month of growth.
The news knocked the commodity currencies down a peg. The Australian dollar fell to a new three-week low against the buck, as did the New Zealand dollar. Obviously, a slowdown in manufacturing seems a negative development on the surface, but given China's relatively torrid pace of growth, a slowdown could be a welcome development as it indicates a more sustainable pace of growth out of China.
: Verbal intervention from Japanese officials began overnight as the yen powered to new seven-month high against the buck on the back of a stronger-than-forecast April-June Tankan survey. The newest board member of the Bank of Japan lashed out at the yen's appreciation and remarked that they BOJ is closely watching the markets and that if the yen holds onto its recent gains it could weaken the economic recovery underway in Japan.
: U.S. weekly jobless claims rose by 13,000 to 472,000 this week. Expectations had been for a decline to 452,000. The four-week moving average also rose to 466,500. This represents continued disappointment in the jobs market. The Challenger Gray & Christmas data released an hour earlier showed a higher level of planned layoffs for the first half of 2010. The combination of data shows that the U.S. has a long way to go before the jobs market turns the corner.