The euro exhibited a slight recovery from nearly a three-month low against the U.S. dollar on Thursday as traders eagerly awaited the European Central Bank’s decision on interest rates. This follows Wednesday’s U.S. inflation data, which did little to alter expectations of a Federal Reserve pause next week.
The euro saw a gain of up to 0.21%, reaching $1.0752, continuing its gradual ascent from last week’s low of $1.0686, the weakest level recorded since mid-June.
As of now, it has edged slightly higher to $1.0736, with significant movements constrained by the impending ECB meeting.
Expectations regarding the outcome of the ECB meeting are divided between a possible pause and a 25-basis-point rate increase. Market sentiment appears to lean toward the latter, partly influenced by a Reuters report suggesting that Europe’s central bank anticipates inflation to remain above 3% next year in its revised forecasts, surpassing the 2% target.
Kristina Clifton, FX strategist and economist at Commonwealth Bank of Australia, noted, “Given market pricing, (the euro) will fall more if the ECB keep interest rates on hold than rise if interest rates are increased.”
Additionally, the ECB will release updated economic forecasts, and the bank’s stance on the pace of inflation decline will serve as a guide for further tightening measures.
Elsewhere, market movements remained subdued, with the British pound showing minimal change at $1.2486, the Japanese yen strengthening slightly to 147.29 per dollar, and the Swiss franc maintaining stability at 0.8934 per dollar.
Despite the robust U.S. Consumer Price Index (CPI) data released on Wednesday, market expectations regarding the Federal Reserve’s stance and the dollar remained largely unchanged. Traders are nearly certain that the Fed will maintain steady interest rates on September 20, according to money market pricing. However, there is about a 40% chance of a quarter-point rate hike by year-end.
The U.S. CPI recorded a 0.6% increase last month, the most substantial rise since June 2022, according to the Labor Department. However, core inflation, which the Fed closely monitors as it excludes food and energy prices, registered a year-on-year rate of 4.3% in August, down from 4.7% the previous month.
The Australian dollar surged by as much as 0.54% to its highest level since September 5, reaching $0.64545, following reports of the economy adding a consensus-beating 64,900 jobs in August. However, it failed to maintain all of these gains and was last up 0.2% at $0.6433.
Sweden’s crown briefly touched a new record low of 11.967 per euro after data revealed a slower-than-expected pace of headline Swedish inflation in August. However, this movement was short-lived, with the Swedish currency last trading at 11.94 per euro and 11.12 per dollar, showing little change for the day.
