Euro jumps on hawkish ECB signals, weakening dollar

THE euro jumped to a more than 3-week peak versus the dollar on Monday (Sep 12), as European Central Bank officials argued for further aggressive monetary tightening and the greenback softened against most majors except the under-fire Japanese yen.

The European common currency rose around 1.5 per cent to US$1.0198, its highest since Aug 17, and well up from a 20-year trough of US$0.9862 hit last week. It was last up 0.88 per cent at US$1.01345.

“Positions are pretty stretched, everyone and his dog has been long dollar, and we had (ECB) comments over the weekend, which are very hawkish and that fed this perception that maybe the market is overdone,” said Jane Foley, head of FX strategy at Rabobank.

ECB policymakers see growing risks that they will have to raise their key interest rate to 2 per cent or more to curb record inflation in the eurozone, sources told Reuters.

Foley said the chance of lower US inflation data on Tuesday, which also boosted stocks, was also pushing investors away from the safe haven dollar, though this was likely just a pocket of profit taking.

“As long as the market is fearful of taking significant risk in high risk currencies the dollar will be firm for another 6 months or so,” she said.

The euro’s strength was also seen against the pound and it rose as high as 87.22 pence on Monday, its highest since February 2021.

The greenback’s weakness on the day meant sterling gained 0.8 per cent on the dollar to US$1.1678, and hit its highest level this month early in London trading, marking a small recovery from last week’s 37-year low.

The dollar index was down 0.67 per cent at 108.25 down from a 2-decade peak of 110.79 reached on Wednesday.

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Dollar slides as investors balance positions ahead of US inflation data

Investors are wary ahead of the US CPI report, which Commonwealth Bank of Australia analysts said could determine whether the US Federal Reserve increases rates by 50 basis points or 75 basis points at its meeting next week.

The dollar was steady against the rate-sensitive Japanese yen, at 142.66 yen, a little off its 24-year high of 144.99 hit last week.

The Australian dollar, which typically performs well when investors are positive about growth, was 0.34 per cent higher at US$0.6870 and bitcoin, which moves in a similar manner, was up 1.3 per cent around US$22,100, having earlier hit highest since mid August. REUTERS