The dollar held a firm tone on Thursday, especially after the Philadelphia Fed release, without being able to make a decisive break high. The latest Japanese capital account data recorded outflows into overseas bonds of JPY672bn in the latest week, maintaining expectations of sustained longer-term flows away from Japan which would weaken the Japanese currency, but USD/JPY was unable to make any impression.
Risk appetite tended to drift weaker during the European session with mist major bourses in the red. The imposition of fresh sanctions on Russia contributed to the relatively downbeat mood in European bourses which pushed EUR/JPY to fresh five-month lows below 137.20. USD/JPY also dipped lower once again to the 101.40 area before finding some tentative support.
Headline inflation for the Euro-zone was confirmed at 0.5% with a core reading of 0.8% and there was some slight relief that the rate had not fallen further. EUR/USD found support on approach to the 1.3520 level and attempted a weak rally with underlying sentiment still negative on yield grounds as the Banco Espirito Santo stresses also continued as a background factor.
The latest US jobless claims data was stronger than expected with a decline to 302,000 from a revised 305,000 previously while continuing claims fell to the lowest level for over seven years. In contrast, there was a much weaker than expected housing-starts release with a decline to 0.89mn from 0.99mn while permits fell to 0.96mn. The housing data was important in curbing any dollar momentum ahead of the Wall Street open.
In contrast, the Philadelphia Fed index was much stronger than expected at 23.9 for July from 17.8, the strongest reading since March 2011. With all the components strong, there was further confidence in the US economic outlook. EUR/USD came under fresh pressure, but still managed to hold above the 1.3500 level with USD/JPY unable to make much impression above 101.50.
Sterling had a generally more sedate tone during the day with no major data releases or central bank comments. There were still reverberations from the weak earnings data released on Wednesday which dampened speculation over an immediate Bank of England tightening. GBP/USD was also subjected to profit taking after failing to break above key technical levels and dipped lower to test support below 1.7100.