The Euro initially remain on the defensive on Thursday, but did prove resilient at lower levels. Euro-zone data releases were an important focus during the session and, although the latest German unemployment data was better than expected with a further 14,000 decline for February from a 28,000 decline previously, the data was overshadowed by another set of weak monetary data. Money supply growth was restricted to 1.2% in the year to January and private lending contracted by 2.2% which caused considerable concern given hopes that lending might have recovered following a year-end squeeze.
The latest German inflation data was weaker than expected, increasing speculation over a depressed Euro-zone inflation reading on Friday. There was some disappointment surrounding a Spanish GDP revision as house prices continued to fall for the fourth quarter. Following the break below 1.3700 support on Wednesday, EUR/USD pushed to test lows below 1.3650 ahead of the US open with increased speculation that the ECB would have to take action.
There were reduced expectations that the Bank of Japan would move to expand quantitative easing aggressively from current levels and an underlying reduction in bearish speculative yen bets. Overall yield considerations continued to helped limit dollar losses with spreads over Japanese yields at multi-year highs as benchmark local rates held below 0.60%.
Headline US durable goods orders were slightly weaker than expected, offset by a firmer underlying reading while jobless claims rose to 348,000 in the latest week which curbed further EUR/USD selling pressure, especially with Euro-zone assets still being seen as having some defensive qualities given on-going stresses surrounding Ukraine.
Potential underlying pressure on the Euro was, however, illustrated by a fresh decline against the Swiss franc as EUR/CHF retreated to 10-month lows below 1.2160 with the dollar blocked around 0.8930.
Prepared Senate testimony from Fed Chair Yellen was unchanged from the House statement two weeks ago and provided no major market impetus as EUR/USD rallied back to the 1.3680 area. USD/JPY had found support on dips below 101.80 and moved back to near 102.20 before hitting fresh selling pressure.
Sterling was broadly out of the limelight during the day with the flurry of comments from Bank of England officials having progressively less currency impact with little fresh comment in the remarks. EUR/GBP remained on the defensive and tested support below the 0.82 level before recovering some ground while GBP/USD was able to hold above 1.66 support.