The euro shot up this week. It changed hands at $1.08735 on Friday. The coin plunged 0.28% on the day. Despite that, it was expected to end this week with a 1% gain. That is its biggest rally in 11 weeks.
Inflation data from the Eurozone showed that prices are still quite high. That means the European Central Bank will have to keep raising interest rates, more than the United States. This news bolstered the common currency.
According to a new report, eurozone inflation has plummeted to its highest this month. At the same time, pressures on core prices, excluding energy and food, deepened. The latter weighs on the European Central Bank, forcing it to continue raising rates. On Thursday, inflation data from Germany also contributed to the euro’s rally, lifting the currency 0.56%.
Nomura analysts said they expect the ECB to continue its tightening policy. The bank has already stated that it will continue to raise rates if its core inflation base case materialises. The bank also expects markets to calm down after fears about a recession in the banking sector generated volatility. Unless other obstacles appear, the ECB will continue on its aggressive course.
On Friday, the dollar index looked destined to end this week in the red again. Investors focused on new data from the US Core Personal Consumption Expenditure (PCE) price index will influence the Federal Reserve’s decision on future policy. These data will be delivered later on Friday.
How is the US dollar trading now?
The dollar index fell 1.2% in the quarter. The coin extended a 7.7% decline in the fourth quarter of 2022. While it gained a modest amount in mid-March on investor risk-off sentiment, it wasn’t enough to propel the index higher from deep territory. bass guitarist.
The failure of two US regional banks also weighed on the dollar. Currency markets price in about a 40% chance that the US central bank will end its rate hikes. If that happens, the dollar will fall again.
The index rose 0.2% daily, changing hands at 102.37 on Friday. It jumped 0.36% against the Japanese yen, trading at 133.17 yen. The dollar seemed poised to end the week higher after suffering losses in the previous four weeks, even though it fell on a quarterly basis. Over the past week, the Japanese currency has also rallied thanks to its safe-haven status, but has pared some of those gains in recent sessions.
In Europe, the British pound became the best performing currency in the first quarter of this year. It was expected to end the quarter with a gain of around 2.5%. However, the British pound was flat on Friday, changing hands at $1.2386.
Francesco Pesole, ING’s FX strategist, noted that the improved UK economic outlook boosted sterling. Furthermore, market players believe that the Bank of England will continue to raise rates. Such sentiment also supports the currency.
The Swiss franc fluctuated during this week. It spiked after the unexpected collapse of Silicon Valley Bank due to its safe haven status. However, the currency plunged again as fears over the banking sector hit home. On Friday, the franc was trading at 0.914 per USD. It is likely to end the month near its 18-month high of 0.9061, which it hit in early February.
What about Australian and emerging currencies?
The New Zealand dollar changed hands at $0.6257 on Friday. The Aussie settled at $0.6690. The Australian currency fell 1.8% this quarter. The central banks of Australia and New Zealand have meetings scheduled for next week. Traders expect Australia’s central bank to keep interest rates unchanged, while New Zealand’s central bank could raise rates by 25 basis points.
The Chinese yuan gained today, supporting the Australian and New Zealand. Chinese manufacturing activity is slowing, but currencies continue to rise.
Emerging Asian currencies were also trading in the green on Friday. Furthermore, most of the region’s currencies seemed poised to end this quarter with gains. The Indonesian rupiah showed a record 3.8% rise. Meanwhile, the rupee added 0.5% today, hitting a nearly two-month high. Maybank analysts pointed out that the rupee could gain sooner if there is further weakness in the dollar.
On Friday, South Korea gained and Malaysia’s ringgit rose 0.3% each. The Indian rupee also added 0.2%.
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