The euro climbed towards a one-week high on Thursday as investors awaited the European Central Bank’s (ECB) policy decision, with markets expecting policymakers to leave interest rates unchanged while signalling the possibility of another hike later this year amid rising energy prices.
The single currency rose 0.17% to US$1.1429, while the US dollar index, which tracks the greenback against a basket of major currencies, eased 0.13% to 100.98.
Although the ECB raised interest rates in June and indicated further tightening could follow, recent data showing easing inflation, slower wage growth and softer economic activity have reduced expectations of an immediate follow-up increase.
However, escalating tensions in the Middle East have pushed oil prices to their highest level in more than six weeks, raising concerns that higher energy costs could reignite inflationary pressures across the eurozone.
“We have flagged a small risk that the ECB decides to deliver an early hike,” said Samara Hammoud, international economist and currency strategist at Commonwealth Bank of Australia. “A ‘hawkish hold’ is another upside risk to EUR/USD today.”
Brent crude extended gains after the US launched fresh strikes against Iran while Iran-backed Houthi forces claimed attacks on oil tankers in the Red Sea, adding to fears of supply disruptions and complicating the inflation outlook for central banks.
Elsewhere, commodity-linked currencies also strengthened, with the Australian dollar rising 0.23% to US$0.7012 and the New Zealand dollar trading at US$0.5818. Sterling gained nearly 0.1% to US$1.3384.
In cryptocurrency markets, Bitcoin slipped 0.5% to US$65,557.35, while Ether fell 0.44% to US$1,917.65.
The Japanese yen showed little sign of recovery, edging just 0.04% higher to 163.05 against the US dollar after touching 163.23 earlier this week, its weakest level since December 1986.
A Reuters survey published on Thursday found that 86% of economists expect the Bank of Japan (BOJ) to raise interest rates again this year, potentially as early as October, although 95% believe rates will remain unchanged this quarter.
Japan’s Finance Minister reiterated on Thursday that authorities stand ready to take decisive action in the foreign exchange market if necessary, following repeated verbal interventions as the yen remains under pressure.
Tokyo previously conducted yen-buying interventions in April and May after the currency weakened beyond the 160-per-dollar level.
The Reuters poll also showed nearly 80% of economists believe the yen’s current level around 160 per US dollar is weaker than justified by Japan’s economic fundamentals.
Kumiko Ishikawa, senior foreign exchange market analyst at Sony Financial Group, said the dollar’s move above the 163 level has heightened market expectations of intervention, although the absence of stronger warnings from Japanese officials has left traders uncertain over when authorities might step in.
Reuters
