Euro fragile as Fed hike looms, Aussie hike bets retreat
SINGAPORE — The euro nursed losses on
Wednesday after its sharpest drop in two weeks as a cut in
Russian gas supply sent energy prices soaring, while the
Australian dollar dipped with relief that inflation was not as
hot as some investors had bet.
But most moves were modest as traders awaited a Federal
Reserve policy announcement at 1800 GMT.
The euro rose 0.3% to $1.0145 in Asia, not enough
to recoup much of Tuesday’s 1% slide as Europe’s growth remains
dependent on what are diminishing Russian gas flows.
The yen was steady at 137.00 per dollar. Sterling
crept 0.2% higher to $1.2053. The kiwi was flat at
$0.6230 and Australian dollar fell 0.2% to $0.6923.
Australia’s year-on-year core inflation hit 4.9% in June,
miles above the central bank’s target for 2-3% but not as bad as
some investors had feared and rate hike bets were pulled back.
“The market has taken out the small chance of a 75 basis
point increase … I think that is the reason the Aussie has
sold off a little, out of that relief,” said Ray Attrill, head
of FX strategy at National Australia Bank, adding that investors
were positioned for an upside surprise.
Markets are now pricing a 85.7% chance of a 50 bps rate hike
by the Reserve Bank of Australia next week, with 14.3% expecting
a more muted 25 bps increase.
For the Fed, a 75 bps is priced in, with a 13% chance of a
supersized 100 bps raise.
The focus will also be on the Fed’s news conference at 1830
GMT for any hint on whether policymakers’ resolve to hike
further is waning as growth slows.
“It’s more of a wait-and-see rather than the expectation of
a large surprise,” said Galvin Chia, emerging markets strategist
at NatWest Markets.
He expects the U.S. dollar to remain supported by safe haven
flows over the longer term, amid a darkening global outlook.
Overnight data showed U.S. consumer confidence falling to a
nearly 1-1/2 year low and new home sales slumping, while Walmart
shares slid after the retailer issued a profit warning.
Last week European manufacturing data was soft.
“Downside risks to the eurozone growth and broader growth
concerns globally tends to suggest more dollar strength,” Chia
The U.S. dollar index stood at 107.08, not far below
mid-July’s 20-year high of 109.290. It gained 0.64% overnight,
snapping three straight sessions of declines.
Currency bid prices at 0318 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar $1.0146 $1.0117 +0.28% +0.00% +1.0147 +1.0119
Dollar/Yen 136.9450 136.9500 +0.01% +0.00% +137.1350 +136.8100
Dollar/Swiss 0.9619 0.9632 -0.08% +0.00% +0.9628 +0.9618
Sterling/Dollar 1.2052 1.2030 +0.20% +0.00% +1.2057 +1.2030
Dollar/Canadian 1.2866 1.2886 -0.14% +0.00% +1.2888 +1.2863
Aussie/Dollar 0.6925 0.6937 -0.20% +0.00% +0.6958 +0.6913
NZ 0.6231 0.6228 +0.04% +0.00% +0.6247 +0.6227
Tokyo Forex market info from BOJ
(Reporting by Rae Wee; Editing by Sam Holmes and Kim Coghill)