Dlr, Yen Suffer Limited Losses; Pound Rises

Optimism over U.S. corporate earnings gave risk appetite an added fillip, leaving the dollar and yen lower in Europe Thursday.

But sentiment wasn't that strong and currency moves were limited.

Some analysts questioned how long the positive mood could last.

"Overall risk appetite is at its highest level since before the third quarter of last year and high-yield currencies are pressing against key resistance levels," said the team at Royal Bank of Scotland Group PLC in its daily assessment of the market.

Nevertheless, optimism remains the key driver, with the market focusing on Wednesday's news that U.S. house prices rose 0.9% in April. The question now is whether existing home sales data later in the day also show some buoyancy in the housing market.

Poor results from Morgan Stanley as well as Wells Fargo & Co. helped to ensure that the Dow Jones Industrial Average ended the day 0.4% lower. But stronger-than-expected results from eBay after the close on Wall Street boosted sentiment once again and helped to give a lift to most Asian markets, with the Nikkei closing 0.7% higher.

The shift out of the more safe-haven dollar was encouraged by a report late in the day that the Central Reserve Bank of Peru could seek to lower the dollar's share of its reserves to 62% from 82%. The country has around $30 billion of reserves.

The yen, meanwhile, was coming under pressure from expectations that about Y700 billion of toshin issues could flood the market Friday. These are bonds issued in foreign currencies for Japanese buyers and indicates a growing appetite among Japanese investors for overseas assets.

The pound was the main gainer, roaring ahead on news that U.K. retail sales rose 1.2% last month and not just the 0.3% expected because of hot weather and discounting.

Yen Up On Risk Aversion After US Jobs Data

he yen extended gains to session highs against the euro and dollar Thursday after the release of a worse-than-expected June U.S. payrolls report, which sent U.S. stocks futures lower and risk aversion up.

The dollar fell to an intraday low of Y95.98 and the euro declined to Y134.82.

The safe-haven dollar also earlier hit a session high against the euro, which fell to $1.4014, but has since reversed that move.

The ongoing European Central Bank press conference now may be mitigating a more dramatic response to the data release.

Nonfarm payrolls declined 467,000 in June, the U.S. Labor Department said, a considerably greater decline than the 350,000 expected by economists in a Dow Jones Newswires survey.

In addition, the shortened holiday week in the U.S. is restraining some of the market's response. Alan Ruskin, head of international currency at RBS, said that's keeping the euro above a layer of support near $1.40.

However, this payrolls report "is definitely not good for risky assets, and this could actually help precipitate a pullback in risky assets," said David Woo, global head of foreign exchange strategy at Barclays Capital in London.