Dollar Strengthens Broadly On QE Withdrawal

The greenback rose strongly against other currencies on Thursday as the Federal Reserve indicated on Wednesday that it will reduce its stimulus measures if the economy continues to show gradual improvement. Dollar was also supported in New York morning due to the upbeat existing home sales and Philadelphia Fed business conditions.

Versus the Japanese yen, the greenback rose from Australian low at 96.02 on Thursday due to dollar's broad-based strength together with the cross selling of yen versus other currencies, price rallied to a high of 98.29 in European morning before retreating to 97.55. Later, strong U.S. existing home sales and Philadelphia Fed business conditions lifted dollar to 98.24 in New York morning but failure to penetrate 98.29 prompted profit-taking and price fell sharply to 97.25 in U.S. afternoon.

Philadelphia Fed business conditions came in at 12.5, much better than the forecast of -2.0 and -5.2 in May. Existing home sales came in at 5.18 million unit annual rate, the highest since Nov 2009, versus the expectation of 5.0 million and previous 4.97 million.

Despite euro's brief recovery from Wednesday's low at 1.3262 to 1.3302 in Australia, dollar's broad-based strength together with the rising in U.S. treasury yields pressured the pair below 1.3262 in Asia and price then tumbled to 1.3181 in Europe due to the selloff in European equities before staging a brief recovery to 1.3223. Later, euro extended recent decline to a low of 1.3161 in New York morning after the release of strong U.S. existing home sales and Philadelphia Fed business conditions but then rebounded to 1.3240 at U.S. midday on short-covering before falling again due to cross selling of euro versus yen.

The British pound was under pressure in Asian session due to dollar's broad-based strength and fell to a low of 1.5415 in European morning. However, the pair staged a recovery to 1.5485 after the release of better-than-expected U.K. retail sales (2.1% m/m and 1.9% y/y versus the forecast of 0.8% and 0.2%) and then edged higher to 1.5489 in U.S. afternoon

On the data front, German manufacturing PMI in June came in at 48.7, weaker than the forecast of 49.8. German Service PMI in June came in at 51.3, better than the forecast of 50.0. Euro zone manufacturing PMI in June came in at 48.7, better than the forecast of 48.6. Euro zone service PMI in June came in at 48.6, better than the expectation of 47.5. EU consumer confidence was released at -18.8, better than the forecast of -21.5.

In other news, Spain central bank governor Linde said 'Spain could return to growth as soon as third quarter; country on the right path to grow and create jobs if reform drive is maintained.' ECB's Asmussen said 'agreement on ESM recaps seems possible; flexibility needed in creditor pecking order; important flexibility not excessive; Cyprus authorities must work together on bailout; no viable alternative to Cyprus rescue agreement.'

Data to be released on Friday:

New Zealand consumer confidence, EU current account, U.K. PSNCR, public sector net borrowing, Canada CPI, retail sales on Friday.