By William L. Watts, MarketWatch
LONDON (MarketWatch) -- Worries over the continued fragility of the world economy outweighed a firmer tone in equity markets to underpin the U.S. dollar versus major rivals Thursday, strategists said.
Germany's finance ministry warned in a monthly report that it remains unclear whether the stabilization of the economy will hold, news reports said, just a week after German gross domestic product unexpectedly returned to growth in the second quarter.
Also, Bank of Japan board member Atsushi Mizuno told business executives in western Japan that the country's export recovery could slow in the autumn, and that a sustained recovery would require "support from governments and central banks," Reuters reported.
Those remarks and a much larger-than-expected rise in Britain's public borrowing in July combined to provide some support for the dollar despite a recovery by Chinese and European equity markets, said Michael Malpede, chief market analyst at Easy Forex in Chicago.
"I think there are some question marks about the recovery outlook, which is giving a little bit of a boost to the dollar," he said.
The dollar bought 94.23 yen, up from 93.93 yen in North American trading on Wednesday, as the Japanese unit slipped on a recovery in Asian equities markets.
The euro fetched $1.4231, down slightly from $1.4237 late Wednesday.
The dollar index (DXY 78.53, +0.06, +0.07%) , which tracks the greenback against a trade-weighted basket of six major currencies, traded at 78.578, up from 78.485 late Wednesday.
Markets will turn their attention to the 8:30 a.m. Eastern release of weekly U.S. initial jobless claims, followed by the Philadelphia Fed survey later in the day.
China's Shanghai Composite closed 4.5% higher early Thursday, rebounding after entering bear-market territory with a steep selloff the previous day. See full story.
European equity markets also marched higher and U.S. stock index futures were pointing to a higher open on Wall Street, a day after U.S. markets shook off the Chinese downturn to post gains. Read Indications.
A turn lower by oil futures also helped buoy the dollar, analysts said. Oil futures were off 39 cents to $73.44 a barrel in electronic trading on Nymex.
The dollar and the yen have tended to lose ground as equities and commodities rally, undercut as investors move into assets perceived to hold more risk. The currencies have tended to gain as equities and commodities fall.
The British pound slipped 0.3% versus the dollar to trade at $1.6483 in recent action. The euro rose 0.4% to 86.36 pence against the U.K. currency.
The Office for National Statistics said government borrowing totaled 8 billion pounds in July as tax receipts tumbled, far exceeding forecasts for a 200 million pound borrowing requirement.
The news underlined the fragile state of the British government's finances, highlighting worries about the potential for future tax hikes and the potential for an economic recovery, Malpede said.
The pound, meanwhile, has clocked in one of the worst performances of any major currency in the past two weeks, a let-down after five months of rapid gains. But currency strategists say the notoriously volatile unit could still pick up some recently lost ground. Read more on pound.
