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European Session – Dollar remains soft with little boost from rising US existing home sales, pound hurt by UK retail sales

There were no data out of Europe today with the only headlines being on Greece. The country made a debt payment today to the ECB worth 3.2 billion euro with new bailout money it received from its creditors. The first installment of the total 86 billion euro bailout package was received on time by the Greek government. Political risk in Greece remains elevated though, as rumors continue to center on the risk of snap elections in September.

With the Greek crisis out of the market’s concern for now, the euro has been able to regain some strength. It extended Wednesday’s 0.9% rally to trade to as high as 1.1184. The single currency’s gains were limited though after comments from ECB policymaker Ewald Nowotny who said that the ECB cannot depend on a swift rebound in inflation due to falling oil prices and sluggish growth in China.

The euro was given added support today from a broadly weaker dollar as a result of a softening in expectations for a Fed rate hike in September after Wednesday’s FOMC minutes. Policymakers did not appear confident that the US economy will reach the Fed’s desired 2% inflation target in the medium term.

US jobless claims data today had little impact on the dollar even as the weekly initial claims figure was up at 277,000 compared to a previous 274,000. The increase was a six week high and was more than the expected 272,000 figure. The dollar moved only slightly against the yen but was still off yesterday’s low of 123.67. Dollar/yen trade between 123.78 and 124.14 during today’s European session.

Meanwhile, US existing home sales rose more than expected in July to reach an eight-year high after gaining 2% to an annual rate of 5.59 million units. Forecasts were for the rate of sales to fall to a 5.44 million-unit pace last month. June’s sales pace was revised slightly lower to 5.48 million units from the previously reported 5.49 million units. The dollar moved slightly higher against the yen in reaction to the data but remained within the session range. Separate data released at the same time showed the Philly Fed manufacturing index printed a reading of 8.3 in July compared with June’s 5.7 and above expectations of 6.9.

Sterling was quite volatile today, dropping from a session high of 1.5681 to 1.5605 after disappointing UK retail sales data, then rising back up to 1.5666. The headline number for UK retail sales grew 0.1% m/m which was disappointing relative to expectations of a 0.4% m/m gain. Meanwhile, ex-auto fuel figures were in line with expectations of a 0.4% m/m gain.

Going forward, the market will focus on a series of key PMI data on Friday from various countries, with particular attention to China, the Eurozone and the US.

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