Euro rises with inflation, dollar awaits jobs

On Thursday, the euro maintained its position near a 15-year high against the yen, anticipating significant European inflation figures. Meanwhile, the dollar was under pressure due to upcoming data on consumption, inflation, and jobs, which could provide further evidence of an economic slowdown.

A slightly better-than.expected Chinese manufacturing survey kept the yuan, Australian dollar, and New Zealand dollar stable in Asian trading. However, concerns about China’s economic slowdown are causing all three currencies to experience significant monthly declines.

The Australian dollar traded 0.2% stronger at $0.6485, while kiwi, down 4% in August, remained at 0.5960. The yuan experienced a 2% monthly loss, trading at 7.3895 per dollar.

The euro hovered around $1.0922, having gained 0.4% the previous day after higher-than-expected inflation numbers in Germany and Spain indicated potential impact on a Europe-wide reading set for Thursday. 

Traders have priced in an increased likelihood of a rate hike in Europe next month, reaching approximately 50-50 odds. The euro reached a new 15-year high of 159.76 per yen, although analysts believe further gains would require substantial economic improvement.

Societe Generale (OTC:SCGLY) strategist Kit Juckes noted, “If a weaker dollar is only likely when the signs of slower growth are clear, a stronger euro is only likely when the current gloom about the economy eases.”

The British pound, following the euro’s gains, also remained strong at $1.2723. However, both the pound and the euro are poised for monthly drops against the dollar in August

Dollar gains have been driven by expectations of prolonged elevated interest rates, but these gains have decreased this week due to signs of cooling spending and hiring in the U.S. The dollar index, though still up over 1% for Agust, has fallen 1% for the week so far.

Data on U.S. personal consumption and core PCE (Federal Reserve’s preferred inflation gauge) is expected later on Thursday. The Commerce Department revised second-quarter growth down to 2.1% from an estimated 2.4%. U.S. payrolls data is scheduled for Friday.

Two-year Treasury yields are down about 17 basis points (bps) to 4.888% this week, and fed funds futures imply around a 40% chance of a hike by year-end, compared to about 55% at the beginning of the week.

The dollar’s retreat, combined with concerns about government intervention, has stabilised the yen. While the yen is 2.5% weaker against the dollar this month and down 10% for the year, it has shown some strength around 146 yen per dollar.

Japanese data on Thursday included mixed results, with 6.8% year-on-year growth in retail sales exceeding a forecast of 5.4% while factory output slumped. A rare strike at a department store in Tokyo might indicate potential upward pressure on wages, but divisions among policymakers suggest a response is distant.

The dollar’s most recent trade was at 145.87 yen. Bitcoin, which experience a surge this week due to a court ruling supporting a bitcoin exchange-traded fund, saw a minor decline to  $27,251.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74,81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.