Euro clings to peg as traders await US inflation

A 100 dollar bill seen above euro banknotes in Bogota on July 12, 2022. The euro hovered a hair above parity with the dollar on Wednesday ahead of U.S. inflation data, traders fearing that sky-high reading forces it down not seen in decades.

Daniel Munoz | AFP | Getty Images

The euro hovered a hair above parity with the dollar on Wednesday ahead of US inflation data, with traders fearing a sky-high reading could force it to lows not seen in decades.

Markets are also wary of a surprise from the Reserve Bank of New Zealand, which sets policy at 02:00 GMT, with economists expecting interest rates to rise by 50 basis points.

The New Zealand dollar, which hit a two-year low of $0.6097 on Monday and climbed to $0.6119 in early trading, is vulnerable to further decline if the central bank’s statement focuses more on risks to growth than to inflation.

The common currency, meanwhile, is down nearly 12% this year and fell to $1.0005 on Tuesday as war in eastern Europe sparked an energy crisis that hurt the world’s growth prospects. continent. He last bought $1.0030.

Economists forecast that headline inflation in the United States accelerated to 8.8% year-on-year in June, a 40-year high, which should bolster expectations of interest rate hikes in response and help the dollar in a nervous market on both rates and growth.

“I think the US dollar will continue to rise if the US CPI is stronger than expected,” said Joe Capurso, strategist at Commonwealth Bank of Australia in Sydney. “There is certainly a very good chance that the euro will fall below parity tonight.”

The euro has already fallen below parity with the Swiss franc last month and is flirting with a drop below its 200-day moving average against the pound.

Euro and yen weakness sent the US dollar index higher and it hit a two-decade high at 108.560 this week, hovering at 108.220 in early trading on Wednesday.

The Japanese yen has taken a hit this year as the Bank of Japan sticks to its ultra-loose monetary policy in contrast to tightening almost everywhere else.

It was under pressure at 136.95 to the dollar on Wednesday after hitting its lowest since 1998 on Monday at 137.75.

The Australian dollar fell 0.2% to $0.6746, just above a two-year low of $0.6712 hit on Tuesday.

The pound has also slipped against the stronger dollar and analysts see it adrift following the resignation of British Prime Minister Boris Johnson last week.

It last bought $1.1877, with gross domestic product data due at 0600 GMT, the next hurdle as traders expect May to bring zero growth.

Eight Tories are vying for Johnson’s succession.

“The combination of slow growth, debt and high inflation is likely to prove very challenging for the new conservative leadership,” said Rabobank senior strategist Jane Foley.

“While sterling investors are hoping for a government less distracted by scandal and more focused on consistency around the post-Brexit economy, the jury is still out.

“Sterling could suffer from a lack of new leadership until the new Prime Minister is in place.”

The South Korean won was a little firmer in morning trade after the central bank raised interest rates by 50 basis points, in line with market expectations.

In Wellington, where New Zealand’s central bank has a history of surprising markets, investors are pretty sure a bull is coming and are focused on the tone of the statement.

“Our dovish scenario includes a 50 basis point hike and a statement that emphasizes downside risks to the global economy,” Westpac analyst Imre Speizer said, which he said could lower the kiwi by half a cent and drive down short-term rates.

Comments are closed.