Euro rises against US dollar as risk appetite improves on China measures

THE euro rose against the safe-haven US dollar on Monday (Sep 4), as risk sentiment improved on hopes that China’s policy stimulus might stabilise the economy, while US jobs data boosted bets the Federal Reserve could be at the end of its rate-hike cycle.

With US markets closed on Monday for the Labour Day holiday, liquidity is likely to be thin and traders hesitant to place large bets.

The euro was up 0.3 per cent at US$1.0800, just off a 10-week low touched last week against the greenback. The single currency has weakened almost 12 per cent this summer.

The US dollar, against a basket of currencies including the euro, inched 0.14 per cent lower to 104.09, but remained close to the two-month peak of 104.44 it touched on Aug 25. The index gained 1.7 per cent in August, snapping its two-month losing streak.

China stepped up measures to boost the country’s faltering economy on Friday, with Beijing planning further action including relaxing home-purchase restrictions.

The Australian dollar and the New Zealand dollar also got a lift from those measures.

Data on Friday showed US job growth picked up in August, but the unemployment rate jumped to 3.8 per cent, while wage gains moderated.

A string of economic data highlighting moderating inflation as well as an easing labour market have added to the impression that the US economy is cooling without slowing sharply. This in turn has reinforced hopes that the economy is set for a soft landing.

Markets are pricing in a 93 per cent chance of the Fed holding steady on rates this month, and over a 60 per cent probability of no more hikes this year, the CME FedWatch Tool showed.

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“The US dollar is softening against most other G10 currencies today as risk appetite improves on the back of China support measures,” said Jane Foley, head of FX strategy at Rabobank.

“The euro could have derived a little boost from expectations that, on balance, the ECB (European Central Bank) will maintain a hawkish bias in part to prevent market rates falling too soon. Schnabel’s comments provided an insight into this,” she added.

ECB board member Isabel Schnabel said last week that eurozone growth is weaker than predicted just a few months ago, but that this does not automatically void the need for more rate hikes, especially as investors are undoing some of the ECB’s past work.

Sterling was up 0.3 per cent at US$1.2624, as revised British data published on Friday showed the economy recovered faster from the pandemic than previously thought.

British finance minister Jeremy Hunt said at the weekend that inflation was on track to halve by the end of 2023. He vowed to focus on the goal as he laid out his priorities ahead of the reopening of parliament after the summer break.

Elsewhere, the Australian dollar added 0.2 per cent to US$0.6462 ahead of the Reserve Bank of Australia (RBA) policy meeting on Tuesday, when it is expected to stand pat. A Reuters poll showed that all but two of 36 economists said the RBA would hold its official cash rate at 4.10 per cent on Sept 5.

The Canadian dollar slipped 0.14 per cent to 1.36 per US dollar ahead of the Bank of Canada’s policy meeting this week, with the central bank expected to hold rates.

Looking ahead, investor focus will be on a number of Fed officials due to speak this week for clues on what the US central bank will do at its next policy meeting on Sep 19-20.