Euro clings to parity as traders wait on U.S. inflation


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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

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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.”

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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

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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

growth.

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

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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.

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Currency bid prices at 0058 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

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Session

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

Euro/Yen

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

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Rae Wee and Tom Westbrook in Singapore; Editing

by Jacqueline Wong)

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