LONDON (AFX) - The euro recovered some ground in early trade after German unemployment data came in better than expected, dealers said. Early indications suggest that German unemployment in July was up 8,000 in seasonally-adjusted terms, well below expectations of a 40,000 rise. Rob Hayward, currency strategist at ABN Amro, said the market was slightly relieved that German unemployment hadn't surged as much as expected. "The German data was not as bad as feared," he said. Nevertheless, the euro still has a long way to make up the losses it has made over the last few days, as the dollar gained ground primarily from short-covering, though yesterday's Wall Street surge was an added bonus. Most market participants though expect the dollar to start losing ground soon. "I don't think the dollar recovery is sustainable," said Neil Mackinnon, chief economist at ECU Group, pointing to the existence of the twin deficits. Michael Klawitter, currency strategist at WestLB, also doubts that the dollar upturn will turn into a stable trend. "The current very low issuance activity in the US corporate bond market certainly does not point towards sustainable foreign investment flows into the dollar," he said. Meanwhile, dollar/yen remains under some upward pressure from the development in Japanese financial stocks relative to US financial stocks, said Klawitter. "With part of the weakness in US bank stocks being overdone, the US financial stock index should outperform Japanese bank stocks which according to the correlation should also put upward pressure on dollar/yen," he said. Sterling may be affected by today's quarterly publication of the Inflation Report from the Bank of England. Sterling yesterday suffered its biggest one day drop in more than five years, though this was mainly a dollar phenomenon. ECU Group's Mackinnon will be particularly keen to hear what is said about the UK housing market. Without an easing in the growth of house prices, rates will have to stay where they are, he said. Meanwhile, Commerzbank currency strategist Kamal Sharma noted that it's weeks away from the ten-year anniversary of Black Wednesday, when sterling was kicked out of the European exchange rate mechanism. "We expect sterling to come under more general pressure in September as we approach the tenth anniversary of Black Wednesday and look to build long positions from current levels," he said.