Euro clings to parity as traders wait on U.S. inflation
SINGAPORE — The euro hovered a whisker
above parity on the dollar on Wednesday ahead of U.S. inflation
data, with traders wary 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 0200 GMT, with economists
expecting a 50 basis point interest rate hike.
The New Zealand dollar, which hit a two-year low of
$0.6097 on Monday and inched up to $0.6119 in early trade, is
vulnerable to a further drop if the central bank’s statement is
focused more on risks to growth rather than inflation.
The common currency, meanwhile, is down nearly 12%
this year and fell as low as $1.0005 on Tuesday as war on
Europe’s eastern edge has triggered an energy crisis that has
hurt the continent’s growth outlook. It last bought $1.0030.
Economists forecast headline U.S. inflation accelerated to
8.8% year-on-year in June, a 40-year high, which is likely to
reinforce expectations of interest rate hikes in response and
help the dollar in a market nervous about both rates and growth.
“I think the U.S. dollar will keep increasing if the U.S.
CPI is stronger than expected,” said Commonwealth Bank of
Australia strategist Joe Capurso in Sydney. “There’s definitely
a very good chance that the euro falls below parity tonight.”
The euro already fell beneath parity on the Swiss franc
last month and is flirting with a drop beneath its
200-day moving average against the pound.
Weakness in the euro and yen has vaulted the U.S. dollar
index higher and it made a two-decade peak of 108.560
this week, hovering at 108.220 in early trade on Wednesday.
The Japanese yen has taken a beating this year as
the Bank of Japan sticks with its ultra-easy monetary policy in
contrast with tightening nearly everywhere else.
It was under pressure at 136.95 per 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 trough of $0.6712 made on Tuesday.
Sterling has also slipped on the stronger dollar
and analysts see it adrift in the wake of 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 brought zero
Eight Conservatives are vying to succeed Johnson.
“The combination of slow growth, debt and high inflation is
likely to prove very tricky for the new Tory leadership,” said
Rabobank senior strategist Jane Foley.
“Although sterling investors will be hoping for a government
less distracted by scandal and more focused on providing
coherence around the post-Brexit economy, the jury is still out.
“Sterling may suffer a lack of fresh direction until the new
PM is in place.”
The South Korean won was a fraction firmer in
morning trade after the central bank raised interest rates by 50
basis points, in line with market expectations.
In Wellington, where the New Zealand central bank has been
in the habit of surprising markets, investors are fairly sure a
hike is coming and are focused on the tone of the statement.
“Our dovish scenario comprises a 50bp hike, and a statement
which emphasizes the downside risks to the global economy,” said
Westpac analyst Imre Speizer, something which he expects could
knock the kiwi half a cent lower and push down near-term rates.
Currency bid prices at 0058 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar $1.0030 $1.0036 -0.07% -11.78% +1.0040 +1.0025
Dollar/Yen 136.9850 136.8200 +0.13% +0.00% +137.0400 +136.9500
Dollar/Swiss 0.9823 0.9821 +0.02% +7.69% +0.9826 +0.9819
Sterling/Dollar 1.1876 1.1885 -0.06% -12.18% +1.1889 +1.1875
Dollar/Canadian 1.3032 1.3021 +0.11% +3.10% +1.3034 +1.3020
Aussie/Dollar 0.6746 0.6757 -0.16% -7.19% +0.6759 +0.6742
NZ 0.6119 0.6127 -0.11% -10.59% +0.6128 +0.6119
Tokyo Forex market info from BOJ
(Reporting by Rae Wee and Tom Westbrook in Singapore; Editing
by Jacqueline Wong)