Dollar/euro holds above 3-month low as ECB decision draws closer

14 Sep 2023 , 10:09 AM

After U.S. inflation statistics failed to sway opinions for a Federal Reserve pause next week, the focus on Thursday went to the European Central Bank’s rate-setting meeting later in the day as the U.S. dollar remained above a three-month low against the euro.

As long-term Treasury yields fell, some support for the dollar’s value was lost, and the yen moved away from a 10-month low.

Strong employment data caused Australia’s currency to soar to a one-week high, but it swiftly gave back most of the gains as it emerged that most of the newly created jobs were part-time.

The U.S. dollar index, which compares the dollar to a basket of six developed-market currencies including the euro and yen, fell 0.1% to 104.63 in the early Asian morning.

From a low of $1.0686 last week, the euro increased by 0.1% to reach $1.07415.

The dollar lost 0.2% of its value to reach 147.125 yen, retreating from its previous week’s peak of 147.875.

Early on Thursday, the benchmark 10-year Treasury yield decreased by another basis point (bp) to hover at 4.24%, continuing a 1.6 bps slide from the previous session, when it briefly climbed to a three-week high of 4.352%.

The Labour Department said on Wednesday that the consumer price index (CPI) for the United States rose by 0.6% in June, the highest increase since that month of 2022. However, core inflation, which the Fed is more concerned about because it excludes prices for food and energy, decreased from 4.7% in July to 4.3% in August.

According to money market pricing, traders are still essentially certain that the Fed will hold rates constant once more on September 20. However, the chances of a quarter point increase by year’s end are currently about 40%.

In the meantime, the Australian dollar increased as much as 0.5% to $0.64545, its highest level since September 5, when data revealed that the economy added a more than expected 64,900 jobs in August.

But because 62,100 of those positions were part-time, the initial gains were quickly pared down, and the currency recently traded 0.1% higher at $0.64285.

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