Inflation shock, ECB hawks keep euro near 1-month high

London

THE euro held near a one-month high versus the US dollar on Thursday and a six-week peak against the pound, supported by hawkish comments from European Central Bank (ECB) policymakers after data showed inflation at a decade high and on signs the Fed is not hurrying to tighten policy.

The dollar has been on the defensive over the past couple of weeks as doubts have crept in about when the Federal Reserve will start unwinding its stimulus. Fed chair Jerome Powell said on Aug 27 that the jobs recovery would determine the timing of asset purchase tapering.

Dovish comments from Mr Powell and other Fed policymakers in addition to data misses have seen the greenback index lose around 1.4 per cent versus a basket of currencies since hitting nine-month highs on Aug 20.

The index was marginally weaker at 92.452 by 0945 GMT, not far off a four-week low of 92.376 touched the previous session after soft ADP payrolls figures and ISM manufacturing surveys.

The euro has, in contrast, witnessed supportive data flow, including strong manufacturing growth and inflationary pressure from supply chain snarls.

Fresh figures on Thursday showed factory gate prices in the 19-country euro bloc rose 2.3 per cent month-on-month for a 12.1 per cent year-on-year surge, well above what was forecast. That follows Aug 1's data showing inflation rose 3 per cent year on year in August, the highest in a decade.

It was also buoyed on Aug 1 by comments from a slew of ECB hawks including Austria's Robert Holzmann and Bundesbank boss Jens Weidmann. However, the euro did not advance further and stayed off one-month highs of US$1.1857. It also kept off the one-month high of 130.44 yen touched on Aug 1 and the six-week peak against the pound of 86.02 pence.

Investors say it could struggle to make headway, possibly because ECB guidance has suggested asset purchases will continue until rate hikes are necessary.

Moves across currency markets were subdued ahead of Friday's jobs data and figures later on Thursday on US weekly jobless benefits claims.

The yen was unchanged at 110 per dollar, and the Australian dollar was at a one-month peak of US$0.7465.

The New Zealand dollar too hit a one-month high of US$0.7090, as rate hike bets pushed bond yields to two-month peaks. REUTERS