(Corrects name of bank that analyst works for in paragraph 5)
* Aussie buoyed by solid outlook for local business
* Dollar index hovers near previous day's 2-month high
* Euro firmer but still mired near a 3-month trough
* Sterling also steadies around $1.67 after slide
By Patrick Graham
LONDON, May 29 The Australian dollar jumped more
than half a percent on Thursday as investors considered whether
there was further to run in this week's major moves on currency
markets - a rally for the dollar and retreats for the euro and
A holiday in much of Europe thinned out trading and analysts
said action might be limited until the United States came on
line later, with a second estimate of U.S. second quarter growth
the day's data highpoint.
The euro has fallen to a three-month low this week as
expectations solidified for a multi-pronged attack on monetary
policy by the European Central Bank next week. It was holding
steady just above support at $1.3583 on Thursday.
The Aussie was driven higher by data on business investment
which showed planned spending for 2014/15 jumped to A$137
billion, from an earlier estimate of A$125 billion,
overshadowing a dip in such spending in the first quarter.
"The interesting thing about the Australian economy is that
it is showing some signs of divergence away from China," said
Christian Lawrence, a currency strategist at Rabobank in London.
"There is an increasing feeling that Australia can weather
the slowdown in China better than people previously thought."
In early trading in Europe, the Aussie was up 0.54 percent
at $0.9286. The currency has held between longer-term support
around $0.92 and its 21-day moving average at $0.93 for the past
two weeks. Dealers said it may struggle to break out of that
range in the near future.
Both the pound and the euro recovered a foothold after
falling through barriers respectively at $1.36 and $1.67 in the
For sterling, one of the past year's big winners, the fall
this week has led some to wonder whether its rally against the
dollar has peaked. Thursday's pause underlined the fact that the
jury, for many, is still out.
Citibank analyst Josh O'Byrne said the pound might in
particular have room to recover against the euro.
"The pound selloff could be driven by temporary factors like
month-end corporate hedging as well as unwinding of bets on
favourable M&A flows," he said.
"While some cautiousness maybe warranted ahead of the
mortgage lending data next Monday, we believe that (the) recent
move higher in EURGBP could offer an interesting selling
opportunity ahead of the ECB meeting next week."
The pound traded roughly flat at $1.6703 and just
0.04 percent higher at 81.36 pence per euro.
The dollar hovered near a two-month high against a basket of
major currencies, also taking a pause after rallying on the back
of the slide for sterling, the euro and a number of developing
The dollar index eased less than 0.1 percent to
80.525, within sight of Wednesday's high of 80.581, its best
since early April.
Expectations of policy action from the ECB have been
mounting, a key reason for the recent underperformance in the
euro. A Reuters poll of 48 economists showed a clear majority
expect the ECB to cut its deposit rate into negative territory
next week, a view reinforced for many in the market by
policymakers' comments this week.
Satoshi Okagawa, senior global markets analyst for Sumitomo
Mitsui Banking Corporation in Singapore, said the euro would
stay on the defensive going into the ECB meeting on June 5.
Still, the recent decline in U.S. bond yields may help limit
the scope of the euro's declines against the dollar, he added.
"Given how much U.S. yields have fallen, I doubt that you
can chase the dollar higher that aggressively although there may
be some short-covering," Okagawa said.
(Additional reporting by Ian Chua in Sydney and Masayuki Kitano
in Singapore; Editing by John Stonestreet)