The euro edged higher against the dollar on Thursday as more signals of a weakening US economic recovery lifted it from its biggest daily drop in 10 months in the previous session. The yen slipped against the dollar and euro as investors believed Japan was unlikely to face much criticism of its aggressive monetary easing at a meeting of the Group of 20 countries beginning on Thursday in Washington.
The euro lost 1.1 percent on Wednesday, its worst daily performance since June, after European Central Bank Governing Council member Jens Weidmann was quoted by the Wall Street Journal as saying the bank could ease policy further if economic data warrants it. "The keys to the euro going forward should be squarely in the hands of euro zone data. A continued stream of lacklustre data would strengthen the case for an ECB rate cut and weigh on the euro," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
US data on Thursday showed the number of Americans filing new claims for unemployment benefits rose last week and growth in factory activity in the nation's Mid-Atlantic region cooled in April. The softening of the US growth outlook was also underscored by another report that showed a gauge of future economic activity fell in March for the first time in seven months.
"The market is still slightly shaken because more data keeps rolling in that doesn't meet the growth expectations for the United States," said Greg Anderson, G10 strategist at CitiFX, a division of Citigroup in New York. The euro rose 0.15 percent to $1.3048, finding strong support at a session low of $1.3020 and the psychologically important $1.30 area. It hit a session peak of $1.3096. Against the yen, the euro rose 0.25 percent to 128.15 yen, holding below its recent three-year high of 131.11 yen.
Despite the bounce, analysts said the euro looked vulnerable as expectations grew the ECB may soon lower interest rates. Weidmann's comments "by themselves are not new," said Michael Sneyd, currency strategist at BNP Paribas in London. "However, the fact that the comments were made by the most hawkish member of the Governing Council suggests the ECB is quite close to delivering a refi rate cut."
Some analysts were skeptical about how negative this would be for the euro. Unlike Japan and the United States, the ECB is not printing money via quantitative easing, which tends to weaken the currency. Some also said a rate cut could be positive for the euro zone growth outlook. The dollar rose 0.13 percent to 98.22 yen, with traders citing support around 97.60 yen. Analysts said the yen looked set to weaken further. The dollar hit a four-year high of 99.94 yen last week, stalling just short of option barriers at the psychologically key 100 yen threshold.