Although risk conditions were generally more fragile during Thursday, the dollar failed to derive any significant benefit. There was a weaker than expected reading from the Chinese HSBC PMI index which dipped to six-month lows below 50. The data reinforced Chinese concerns and maintained unease surrounding regional growth which supported the yen. There was also a further net selling of overseas bonds by Japan in the latest week and USD/JPY retreated sharply from highs above 104.80.
The latest Euro-zone PMI data overall was stronger than expected with the manufacturing index as a whole at the highest level since May 2011. There was strong expansion in Germany and the French data, although it remained below the pivotal 50 level, was better than expected.
EUR/USD had already traded with a generally bid tone into the data and the stronger than expected releases boosted the pair further with stop-loss buying also a feature on breaks above 1.3580 and 1.3600 with an early peak around 1.3640.
The latest US jobless claims data was slightly better than expected at 326,000 from a revised 325,000 previously which maintained some optimism surrounding the labour market, although there were suspicions of distortions. There were slightly disappointing readings for the house-price index and the existing home sales data which did little to underpin the dollar as it remained generally on the defensive and unable to gain any traction.
EUR/USD pushed to fresh daily highs around 1.3680 as USD/CHF retreated sharply to test the 0.90 support level. Risk conditions remain more fragile as US equity markets dipped sharply lower at the opening bell. USD/JPY moved lower and the pace of selling increasing once the 104.00 level broke with a slide to 103.50 late in the European session.
Commodity currencies were subjected to powerful and conflicting forces. Potential buying support from a weaker US dollar and sharp rally in gold prices was tempered by weaker equity markets and Asian growth fears. AUD/USD found support on dips towards 0.8750, but was capped by the deterioration in risk conditions. USD/CAD retreated from a peak above 1.1170 to test support below 1.11 as the pair responded to better than expected Canadian data and over-bought conditions with solid buying support below this level.
Although GBP/USD pushed higher to some extent in line with a weaker dollar, there was tough resistance in the 1.66 area and a notable under-performance against the Euro as EUR/GBP rallied to the 0.8325 area from 14-month lows below 0.8280. The latest UK data was slightly disappointing with the CBI retail sales index falling to 14 for January from 34 previously.