The dollar rallied against the yen Thursday following upbeat economic reports on manufacturing, home sales and unemployment claims.
The bevy of encouraging economic news helped the dollar stem a nearly unbroken slide against the yen that began two weeks ago. The dollar had been steadily falling against the yen recently as U.S. Treasury yields slumped following strong auction results, and as Japanese companies sold dollars ahead of the end of the quarter.
The Chicago Purchasing Managers Index jumped in December, echoing strength seen in other regional manufacturing surveys. Pending home sales also rose by more than expected in November, helping bolster hopes the U.S. economy is gaining steam heading into 2011. A stronger economy could help push Treasury yields back up, making the dollar a more attractive investment option.
The two reports followed earlier news that first-time claims for unemployment benefits fell to their lowest level since July 2008.
The reports were "mildly dollar positive," said John McCarthy, manager of currency trading at ING Capital Markets. He also said there was some strong buying interest around Y81.45 that helped nudge the dollar back into positive territory against the yen.
The dollar rose to Y81.69 in late morning trading in New York, according to EBS via CQG, from Y81.64 late Wednesday. The dollar started the day by falling to a seven-week low of Y81.28. The euro rose to Y108.39 from Y107.60.
The economic reports didn't provide much relief to the dollar's weakness against other major currencies, however, as the euro hit a two-week high against the dollar and the Swiss franc also hit record highs against the greenback.
Analysts said the euro was helped by some end-of-the-year short covering.
The euro was at $1.3271 after briefly eclipsing $1.3300. It traded at $1.3225 late Wednesday. The U.K. pound was at $1.5384, down from $1.5494. The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, dropped to 79.625 from 79.796.
The dollar hit a record low of CHF0.9371 early Thursday, briefly rebounded above CHF0.9400 after the jobs report, but has resumed its fall. It was most recently at CHF0.9367.
The euro also fell to a record low against the Swiss franc. The euro dropped to CHF1.2398 early Thursday. It was most recently trading at CHF1.2434.
The dollar and euro weakness against the franc highlights the "genuine strength" of the Swiss franc, said Camilla Sutton, chief currency strategist at Scotia Capital. "A strong sovereign position and relatively solid fundamentals will continue to see it as an attractive home for investors," she said.
Thin holiday markets continue to lead to exaggerated moves and increased volatility.
Tyson Wright, senior position trader at Western Union Business Solutions, put liquidity at 30% to 50% of normal. It might be even less liquid at the end of this year compared with 2009 because the financial crisis has, for the most part, calmed, he said. That means the volatile conditions that had driven traders and hedge-fund managers to open or close positions at the end of the year have subsided, Wright added.
The Australian dollar backtracked after hitting a record high against the U.S. dollar. The Aussie dollar fell to $1.0125 Thursday after climbing as high as $1.0197, according to EBS via CQG. The drop came after a slightly weaker than expected report on Chinese manufacturing and the strong U.S. data.
Australia's currency strength is highly dependent on China importing raw materials from the country, so any signs of disappointment in China often hurt the value of the Australian dollar.
-By Stephen L. Bernard, Dow Jones
