The dollar rose against the euro on Thursday after a plunge in U.S. weekly jobless claims gave some support to a weakened U.S. currency, which has been under pressure amid expectations the Federal Reserve appears likely to raise rates more slowly than first expected. First-time claims for state unemployment insurance benefits, an early reading of the health of the job market, plunged to 310,000 in the week ended July 3, down from a revised 349,000 the previous week, the lowest level in nearly four years, the Labor Department said. Slower rises in U.S. rates, which the Fed increased last week for the first time in four years, mean the differential in interest rates between the dollar and higher-yielding currencies will narrow more slowly.
"We have seen a lot of volatility in the foreign exchange market after the report as it was a much bigger drop in claims than expected, but obviously there is a seasonal issue, which seems to have reversed much of the knee-jerk dollar gains," said Lara Rhame, senior economist at Brown Brothers Harriman in New York. "However, it is good news in the wake of the latest jobs report. We also had continuing claims take a nice fall. Net, net, the number is positive for both the dollar and the economy," she said. The euro initially fell against the dollar, trading at $1.2341 soon after the report from about $1.2350 shortly prior. The dollar rose against the yen, trading at about 108.95 yen from about 108.90 yen shortly prior. Dealers said the U.S. currency was still being hampered by Friday's disappointing U.S. payrolls data and a report on Tuesday showing a slower pace of expansion in the U.S. service sector. After gaining more than three cents against the dollar over the past week, sterling was down 0.2 percent on the day at $1.8530 . The Bank of England held interest rates at 4.5 percent on Thursday, in line with most economists' expectations, after back-to-back rate rises in May and June. The British pound climbed to a three-month high above $1.8575 on Wednesday. The Australian dollar, which rose to two-month highs above US$0.7240 on Wednesday, was down 0.5 percent at US$0.7197. The Aussie took a knock after data showed Australian employment unexpectedly fell in June, pushing the jobless rate up to 5.6 percent.///