The U.S. dollar experienced a slight decline during early European trading on Thursday, influenced by the release of U.S. inflation data. Simultaneously, the euro made gains after a recent slump, with traders eagerly anticipating the European Central Bank’s (ECB) upcoming rate-setting meeting.
As of 03:20 ET (07:20 GMT), the Dollar Index, which measures the greenback’s performance against a basket of six other major currencies, was trading 0.1% lower at 104.269, setting the stage for a week of negative performance.
ECB Rate Decision Looms Large
The EUR/USD currency pair observed a 0.2% increase, reaching 1.0745, as it continued its ascent from last week’s three-month low of 1.0686. Market participants positioned themselves in anticipation of the ECB’s imminent interest rate decision, scheduled later in the day.
President Christine Lagarde had hinted at the likelihood of the central bank pausing its rate-hiking cycle during her remarks in late July. However, recent expectations have tilted towards the possibility of a tenth consecutive interest rate hike, driven by a Reuters report earlier this week. The report revealed that ECB policymakers now anticipate that inflation in the 20-nation eurozone will remain above 3% throughout the next year, a notable deviation from its 2% medium-term target.
Analysts at ING weighed in, stating, “Our baseline scenario sees a rate hike, which would translate into a stronger euro in the aftermath of the announcement. But with EUR/USD having been on a steady bearish path since the 1.12 July peak, the real question is whether a hike would invert the trend. The short answer is probably not.”
November Fed Meeting Gains Significance
Following the release of the latest U.S. inflation data on Wednesday, which revealed the most substantial increase in U.S. consumer prices in 14 months due to rising gasoline costs, the dollar experienced a marginal decline. However, the annual increase in underlying inflation marked its smallest in nearly two years.
Despite these figures, expectations for a Federal Reserve pause during its next meeting remained unaltered. Attention has now shifted to the November meeting, which holds increasing importance in shaping market sentiment.
While core inflation rates show signs of stabilization at lower levels, the upward trajectory of crude oil prices could potentially elevate the headline inflation rate further.
Later on Thursday, additional U.S. inflation data will be released in the form of August producer prices, accompanied by expectations of a slowdown in growth rates for retail sales as consumers exercise spending restraint.
Yuan Awaits Key Economic Data
In other currency movements, USD/CNY experienced a 0.1% rise, reaching 7.2744. However, the yuan remained significantly above its recent 10-month low, buoyed by the People’s Bank of China’s strong daily midpoint fixes.
Chinese industrial production and retail sales data are slated for release on Friday, expected to provide further insights into Asia’s largest economy’s recovery.
USD/JPY witnessed a 0.2% decline, settling at 147.10, with the yen hovering slightly above a 10-month low. Markets anxiously await additional signals from the Bank of Japan regarding its plans to transition away from a negative rate regime.
GBP/USD recorded a 0.1% increase, reaching 1.2494, in anticipation of next week’s Bank of England meeting. Meanwhile, AUD/USD demonstrated a 0.3% rise, reaching 0.6440, following data indicating that the Australian economy added an impressive 64,900 jobs in August, surpassing consensus expectations.
