Daily Currency Analysis

EUR/USD
The Euro maintained a firm tone in early Europe on Thursday, consolidating close to the 1.51 area against the dollar ahead of the ECB policy meeting.

Yen
Risk appetite also improved during the Asian session on Thursday which dampened demand for the Japanese currency as sentiment was boosted by news that the Bank of America would repay TARP funds.

Domestic policy issues will remain a significant influence with further pressure for more aggressive Bank of Japan action to curb the deflation threat. In this context, there will also be continuing pressure for yen gains to be resisted. The dollar broke above the 87.50 resistance area and was close to 87.90 in early Europe.

The dollar pushed to highs near 88.45 and held gains in New York trading while the yen secured only a limited recovery on the crosses following European-session losses

Sterling
A more confident tone in global equity markets, initially helped Sterling push back towards 1.67 against the dollar on Thursday. The PMI services-sector index weakened to 56.6 from 57.1 the previous month. The initial impact was limited as it was still comfortably above the 50 threshold.

Sterling did, however, weaken steadily during the day with a low below 1.6550 in New York while the Euro pushed back to the 0.91 level.

The UK currency is still being damaged by underlying fears surrounding the government debt position and any deterioration in risk appetite tends to intensify selling pressure on the currency

Swiss franc
The dollar continued to probe support levels below parity against the franc on Thursday and hit a low of 0.9960 before rallying back above the 1.00 level later in the US session. The Euro ended little changed against the franc, still significantly below the 1.51 level.

The ECB was slightly more dovish than expected which will provide some near-term franc support. There is still likely to be considerable caution ahead of the quarterly monetary policy meeting next week. Speculation of further National Bank protests against franc strength will tend to curb Swiss currency support

Australian dollar
There were further Australian dollar gains to a high of 0.9320 against the US currency on Thursday The domestic retail sales data was close to market expectations and trends in risk appetite remained dominant. Gold pushed to a fresh record highs which underpinned the Australian currency while regional equity markets were firm.

Risk appetite generally weakened during the day which curbed Australian dollar support while there was also speculation that the Reserve Bank was selling the local currency above the 0.93 level. In this environment, the Australian dollar weakened to lows below 0.9240 later in the US session. Underlying confidence should remain relatively robust in the very short term with strong buying support on dips