Euro down as ECB hikes interest rates to quash inflation

THE euro fell as much as 0.7 per cent to US$1.0656 – the weakest since May, after the European Central Bank (ECB) raised interest rates for the 10th consecutive time to choke inflation.

ECB officials increased the deposit rate by 25 basis points to a record 4 per cent on Thursday (Sep 14), adding that the new level of constriction will make a “substantial contribution” to bringing inflation under control. 

Earlier, the euro rested near a three-month low against the US dollar as traders waited for the ECB announcement.

This came a day after US inflation data failed to alter views for a Federal Reserve pause next week.

Moves were fairly muted across currency markets, with sterling down 0.15 per cent to 1.2471 among the larger fallers. The yen was steady at 147.34 per US dollar, and the Swiss franc stood at 0.8934 per US dollar.

Wednesday’s US consumer price index (CPI) data did little to alter market expectations for the Fed or the US dollar.

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Traders are almost certain the Fed will keep rates steady on Sep 20, according to money market pricing. But odds for a quarter-point increase by year-end stand at about 40 per cent.

The US CPI increased by 0.6 per cent last month, the largest gain since June 2022, the Labor Department said. However, core inflation, which is of greater concern to the Fed as it strips out food and energy prices, ran at a 4.3 per cent year-on-year rate in August, from 4.7 per cent the previous month.

Elsewhere, Sweden’s krona briefly touched a new record low of 11.967 per euro, after data showed the pace of headline Swedish inflation slowed more than expected in August. But the move was short-lived, and the Swedish currency was last at 11.94 per euro and 11.12 per US dollar, both little changed on the day.

The Australian dollar rose as much as 0.52 per cent to its highest in a week US$0.64545 after figures showed the economy added a consensus-beating 64,900 jobs in August.

China’s offshore yuan weakened on Thursday after the People’s Bank of China said it would cut banks’ reserve requirement ratio by 25 basis points.

The US dollar rose to as high as 7.2921 against the yuan traded offshore right after the announcement, up 0.3 per cent on the day.