On Tuesday, the euro fell to a three-month low against a fairly stable dollar, as poor data tainted some of the single currency’s appeal, while Antipodean currencies hung on to their gains, bolstered by strong data and hawkish comments. Investor sentiment in Germany, the euro zone’s largest economy, is still high, but it dropped drastically in July, according to the ZEW economic research institute, while orders for German-made goods fell to their lowest level since the first lockup in 2020 in May.
The data weighed on the euro, which fell 0.2 percent to US$1.1844 in European noon trading. Last week, it hit a low of US$1.1807, the lowest since early April. “Both (indicators) work in that direction,” said Adam Cole, chief currency strategist at RBC. “However, the timing of the move suggests it is more flow-related in quiet summer markets.” In the past month, the euro has struggled to keep up with the buck, with the European Central Bank appearing to be well behind many of its counterparts in the tightening cycle. In a morning letter to her clients, Commerzbank strategist You-Na Park-Heger wrote, “As inflation pressure in the euro zone remains fairly low, the ECB is likely to take its time with the reduction in asset purchases.”
“Anyway, a first rate hike is a long way off,” she added.
Policymakers at the European Central Bank are debating a new strategy, with many now supporting the idea of allowing inflation to rise above 2% for a while after it remained below that level for most of the previous decade.
Annual price increase is expected to reach 2.6 percent in the fourth quarter of this year, up from 1.9 percent last month, according to ECB predictions. After that, it’s expected to drop to 1.5 percent in 2022 and 1.4 percent in 2023. The New Zealand currency had previously risen after a particularly good survey of business conditions caused investors to speculate that a rate hike could happen as soon as November.
The kiwi was up roughly 0.8 percent at US$0.7082 at 1055 GMT, having touched its highest level since mid-June.
The Australian dollar jumped as high as 1.2 percent to US$0.7599 as the Reserve Bank of Australia reduced bond purchases and revised its rate outlook to leave a sliver of room for hikes before 2024.
The RBA joins a tiny but rising group of central banks that are backing away from significant pandemic-era support.
The Australian dollar, on the other hand, slowed and was only up 0.6 percent in European noon trading.
Meanwhile, the dollar gained momentum after mixed U.S. labor market data on Friday relieved some of the pressure on the Federal Reserve to raise interest rates.
Investors are eagerly awaiting minutes from the Federal Reserve’s meeting in June, when the central bank startled markets by shifting to a more hawkish stance. They’re scheduled to be released on Wednesday. The dollar index was up 0.1 percent at 92.341 at 1100 GMT. Later in the day, when US markets return from their holiday break, surveys of US services and German sentiment will be released. After hitting a one-week high of US$1.3888, sterling gave up its morning gains and was flat versus the dollar, with markets anticipating England being the first major country to publicly begin living with the coronavirus by removing COVID-related restrictions in two weeks. https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrzeoqve/FXpercent20returns.JPG (Jacqueline Wong and Mark Heinrich edited)/n
