Euro Edges Lower as ECB Rate Hike Uncertainty Lingers
The euro dipped slightly on Thursday following comments from German policymaker Isabel Schnabel, which failed to provide clear indications on whether the European Central Bank (ECB) will raise interest rates in September. This comes ahead of the release of euro zone inflation data later in the day.
At the time of writing, the euro was trading at $1.0888, down 0.3% for the day but still up nearly 1% for the week.
Schnabel, an ECB rate-setter, acknowledged that euro zone growth was weaker than expected but emphasized that this does not necessarily eliminate the need for further rate hikes.
Michael Brown, an analyst at Trader X, noted, “We’ve heard the most influential hawk on the Governing Council take on a much more cautious tone. I think the fact she is flagging downside risks to growth is putting some downside pressure on the euro this morning.”
Traders have adjusted their expectations, with around a 60% chance that the ECB will maintain its current interest rate in September. This follows increased bets on a rate hike after the release of German and Spanish inflation figures.
Euro area-wide inflation data is set to be released at 0900 GMT today.
Meanwhile, the British pound, which had followed the euro’s gains on Wednesday, also softened slightly against the dollar, trading at $1.2700. Both the pound and the euro are on track for monthly declines against the dollar in August.
The dollar has been bolstered by expectations that interest rates will remain elevated for a longer period. However, it has eased this week due to signs of cooling U.S. spending and hiring.
The dollar index, which is still up over 1.4% for August, has fallen 0.8% so far this week. On Thursday, it was up 0.2%.
Later on Thursday, U.S. personal consumption data and core PCE, the Federal Reserve’s preferred inflation gauge, will be released.
The Commerce Department revised down U.S. second-quarter growth to 2.1% from an initial estimate of 2.4%. U.S. payrolls data is scheduled for release on Friday, and recent figures such as job openings and private payrolls have indicated a potential slowdown in the labor market.
Chris Turner, global head of markets and regional head of research for UK & CEE, commented, “The move in the dollar has been driven on one side by the soft second-tier U.S. jobs data. Trying to fight the dollar is still very difficult at the moment, but perhaps there’ll be more evidence of a slowdown in the fourth quarter.”
The dollar’s retreat this week, coupled with concerns about Japanese government intervention, has stabilized the yen. It is down 2.4% against the dollar this month and 10% for the year, but has found some stability around 146 yen per dollar. It was last trading at 145.855.
Meanwhile, the euro was last trading at 158.77 yen, close to a 15-year high of 159.76 reached the previous day.
Japanese data on Thursday showed a mixed picture, with retail sales growing by 6.8% year-on-year, surpassing the forecast of 5.4%, while factory output slumped. A rare strike at a department store in Tokyo may indicate upward pressure on wages, although policymakers’ differing views suggest a response is still some way off.
A slightly better-than-expected Chinese manufacturing survey helped keep the yuan, Australian dollar, and New Zealand dollar steady. However, all three currencies are on track for significant monthly declines due to concerns about China’s economic slowdown.
The Australian dollar traded flat at $0.6475, while the New Zealand dollar, down 4% for August, held at $0.5954. The yuan traded at 7.2905 per dollar, representing a 2% monthly loss.
Bitcoin, which experienced a surge this week following a court ruling that boosted the prospects of a bitcoin exchange-traded fund, saw a slight decline to $27,247.
Reporting by Samuel Indyk and Tom Westbrook; Editing by Shri Navaratnam and Kim Coghill
How will the upcoming economic data releases later this week impact the assessment of the health of the U.S. economy?
Later this week, which will provide further insights into the health of the U.S. economy.
Overall, uncertainty surrounding ECB rate hikes continues to weigh on the euro, while the dollar remains bolstered by expectations of elevated interest rates. Traders are closely watching economic data releases for further guidance on central bank policies.
