TORONTO (Dow Jones)--The dollar pushed higher against the yen but lower against the euro and most other currencies Thursday as stocks and commodities rallied and risk was the watchword in global markets.
The euro ended modestly higher against the dollar, recovering from an earlier bout of weakness after a report from the International Monetary Fund said the single currency was on the high side relative to its fundamentals.
Perhaps the most decisive move among the majors, the dollar's advance against the Japanese yen, was powered by month-end-related flows as well as general risk appetite.
"Watching the yen underperform is no great surprise given the movement in equities today, but added to the mix would be a fairly significant month-end flow, not only from a corporate perspective but from an investment perspective, as well," said Jack Spitz, managing director of foreign exchange at National Bank Financial in Toronto.
A lack of liquidity stemming from summer trading conditions exacerbated currency market moves Thursday, including the dollar's appreciation against the yen.
"Trading ranges tend to be a little bit more elastic during the summer months," Spitz said.
The dollar reached a high of Y95.89 during the session, before retracing some of its gains. It's unlikely to deviate too far from its 200-day moving average, which was around Y95.07 Thursday afternoon, Spitz said.
Late Thursday afternoon in New York, the dollar was at Y95.50 from Y95.01, according to EBS. The euro was at $1.4071 from $1.4034 late Wednesday. It was also at Y134.35 from Y133.27, and advanced as high as Y134.73 Thursday. The dollar was at CHF1.0875 from CHF1.0878 Wednesday. The U.K. pound was at $1.6493 from $1.6367.
The dollar also reached a two-week high of CHF1.0935, and the euro moved as high as CHF1.5338.
The euro's advance comes after a sharp sell-off Wednesday to a two-week low of $1.4007 after it failed to reach a new 2009 high, but came close at $1.4305.
"There's no great push to take euro through $1.4300. It seems to find itself within a relatively well-defined range," Spitz said.
The euro had weakened in morning trading Thursday after an IMF report said the euro "is somewhat on the strong side relative to its fundamentals" and is up to 15% overvalued.
"This assessment is in line" with other measures of fair value, said Ian Stannard, a currency strategist at BNP Paribas in London.
Marc Chandler, global head of foreign exchange at Brown Brothers Harriman in New York, added that in recent years, the IMF was thought to consider the dollar as overvalued.
Its statement on the euro therefore represented a major shift.
In its annual report, the IMF said the health of the banking sector is key to the euro zone's economic recovery and urged the European Central Bank to maintain a supportive policy stance in order to help boost the low levels of lending to the private sector. It also said the euro area is facing strong disinflationary pressures.
Data released overnight on European employment had also put temporary pressure on the currency.
The number of people out of work in Germany, Europe's largest economy, fell more than expected. But the figure excluded 30,000 jobless enrolled in a new government-sponsored training program and was kept low by the extensive use of government subsidies to companies to keep staff on shortened hours rather than laying them off.
In contrast, Thursday's morning U.S. release showed the tally of continuing U.S. jobless claims - those drawn by workers for more than one week - fell by 54,000 during the week ended July 18 to 6,197,000, the lowest level since April 11.
In afternoon trading, the dollar suffered knee-jerk losses against the euro and yen after the results of a closely watched Treasury auction.
But currency analysts said the swift moves were more reflective of market noise than an actual interpretation of the auction, and they were quickly reversed.
The auction of seven-year notes drew the most interest from large institutional investors, including foreign central banks, of the three note sales this week. This demand, known as the "indirect bid," accounted for a robust 62.5% of the offering.
