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Euro clings to parity as markets wait on U.S. inflation

Image: Reuters Berita 24 English - Ahead of U.S. inflation statistics on Wednesday, the euro remained just over parity with the dollar, as s...


Image: Reuters

Berita 24 English - Ahead of U.S. inflation statistics on Wednesday, the euro remained just over parity with the dollar, as speculators were concerned that a shockingly high reading may push it to levels not seen in decades.

Since experts anticipate a 50 basis point interest rate hike from the Reserve Bank of New Zealand, which announces its policy at 2:00 GMT, markets are also apprehensive of a surprise.

The New Zealand currency is susceptible to a further decline if the central bank's announcement emphasises threats to GDP rather than inflation. It touched a two-year low of $0.6097 on Monday and edged up to $0.6119 in early trade.

The euro, however, has lost about 12 percent of its value this year and hit a low of $1.0005 on Tuesday. This is because the battle on Europe's eastern border has sparked an oil crisis that is harming the continent's prospects for economic growth. Recently, it spent $1.0030.

Economists predict the following: Inflation in the United States increased to a 40-year high of 8.8 percent in June, which is expected to increase expectations that interest rates would rise in response and support the dollar in a market that is concerned about both rates and growth.

If the U.S. CPI is higher than anticipated, the U.S. dollar will likely continue to rise, according to Commonwealth Bank of Australia strategist Joe Capurso in Sydney. "The euro falling below parity tonight is absolutely a very good possibility."

Last month, the euro has depreciated below parity against the Swiss franc, and it is now on the verge of depreciating below its 200-day moving average against the pound.

The U.S. dollar index rose sharply this week, reaching a two-decade high of 108.560 while circling at 108.220 in early trade on Wednesday. This was due to weakness in the euro and yen.

As a result of the Bank of Japan's continued ultra-easy monetary policy, which contrasts with tightening virtually everywhere else, the Japanese yen has suffered this year.

After falling to its lowest level since 1998 on Monday at 137.75, it was under pressure on Wednesday at 136.95 per dollar.

A two-year low of $0.6712 was reached on Tuesday, and the Australian dollar dropped by 0.2% to $0.6746. [AUD/]

The rising dollar has also caused sterling to fall, and many predict it will continue to do so in the wake of British Prime Minister Boris Johnson's departure last week. [GBP/]

The next obstacle is the release of the gross domestic product statistics at 6:00 GMT, since traders anticipate little growth in May. It last traded at $1.1877.

There are eight Conservatives running to replace Johnson.

According to Jane Foley, senior analyst at Rabobank, "the mix of poor growth, debt, and rising inflation is going to be quite challenging for the new Tory administration."

"The verdict is yet out, even though sterling investors will be looking for a government less preoccupied with scandal and more committed to fostering cohesion around the post-Brexit economy.

"Until the new PM is in place, Sterling may lack new direction."

Following the central bank's 50 basis point increase in interest rates, which was in line with market forecasts, the South Korean won gained a little bit of strength in morning trade.

Investors in Wellington, where the New Zealand central bank has a history of shocking the markets, are reasonably certain that an increase will occur and are concentrating on the tone of the statement.

Imre Speizer of Westpac said, "Our dovish scenario contains a 50bp boost and a statement that emphasises the downside risks to the global economy," which he predicts could cause the kiwi to fall by half a cent and decrease short-term rates.

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Currency bid prices at 0058 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0030 $1.0036 -0.07% -11.78% +1.0040 +1.0025

Dollar/Yen

136.9850 136.8200 +0.13% +0.00% +137.0400 +136.9500

Euro/Yen

137.39 137.37 +0.01% +5.43% +137.4700 +137.1300

Dollar/Swiss

0.9823 0.9821 +0.02% +7.69% +0.9826 +0.9819

Sterling/Dollar

1.1876 1.1885 -0.06% -12.18% +1.1889 +1.1875

Dollar/Canadian

1.3032 1.3021 +0.11% +3.10% +1.3034 +1.3020

Aussie/Dollar

0.6746 0.6757 -0.16% -7.19% +0.6759 +0.6742

NZ

Dollar/Dollar 0.6119 0.6127 -0.11% -10.59% +0.6128 +0.6119

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

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