The common currency fell against the dollar today. The new data showed that inflation in the euro zone was lower than what traders had feared. That means there is less chance of the European Central Bank raising interest rates. While the decline in inflation is good news, the latter part sent the euro into bearish territory.
According to the report, inflation in the euro zone fell to 8.5% last month from 8.6% in January. This was mainly due to lower energy prices. However, it is still higher compared to the 8.2% forecast. Despite the fall in the euro, investor reaction to the data was not very strong.
On Wednesday, the single currency jumped 0.9% against the dollar, reaching its highest point in a month. German prices soared more than expected last month, along with inflation in France and Spain. This news raised traders’ hopes of further ECB rate hikes, which supported the euro.
Ben Laidler, global markets strategist at Etoro in London, noted that inflation was higher than forecast, but perhaps not as bad as feared, considering expectations had changed after domestic data in recent days. He thinks the central bank could proceed with a 50 basis point rate of increase. But that would still be aggressive.
On Thursday, the euro fell 0.5% against the dollar, trading at $1.0618. Meanwhile, sterling fell 0.46% to $1.1970 on comments from Bank of England Governor Andrew Bailey. He stated that nothing was decided on future interest rate hikes.
On the other hand, the US dollar index rose 0.43% to 104.82. A jump in US Treasury yields supported the currency. Federal Reserve official Neel Kashkari also signaled that a 50 basis point rate hike was possible at the agency’s next meeting in March.
What about Asian currencies?
The Japanese yen fell 0.3% to 136.65 per dollar on Thursday. At the same time, the Australian and New Zealand dollars tumbled, along with the Chinese yuan, after gaining substantially in the previous session.
Emerging Asian currencies were also trading lower broadly today. Thailand’s baht fell 0.5%. Meanwhile, China’s yuan was down 0.4% and the Singapore dollar fell 0.3%. In addition, the Philippine peso and the Indonesian rupiah each fell 0.2%.
On the other hand, the South Korean won shot up 0.7%. He was the only winner in the region. On Wednesday, strong factory data from China showed the country’s economy is growing faster than investors expected, prompting the yuan’s short-lived rally.
