(Updates prices, adds more comment)
* Aussie buoyed by solid outlook for local business
* Dollar index dips, eyes on data including Q1 GDP breakdown
* 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
this week's major currency moves - a rally for the dollar and
retreats for the euro and sterling - had further to run.
A holiday in much of Europe thinned out trading, and
analysts said a second estimate of U.S. second-quarter growth
might prompt more substantive moves among the other majors.
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 spending plans for 2014/15 have 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."
By midday in Europe, the Aussie was up 0.65 percent at
$0.9296. 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
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 may be 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 marginally higher at $1.6703.
Against the euro it gained 0.2 percent to 81.45 pence per euro
The dollar index fell around 0.2 percent to 80.435
drifting lower from Wednesday's two-month high of 80.581.
The U.S. currency's gains in the past week have come in
spite of another slide in U.S. Treasury yields, but another
5-basis point dip in 10-year rates on Wednesday were enough to
halt the rally.
Still, 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.
"The bias is lower (for the euro)," said Rich Kelly, head of
European FX and rates research at TD Securities in London. "My
only worry is that a lot is priced in and that the ECB will
struggle to live up to those expectations next week."
(Editing by Hugh Lawson)