As European Central Bank officials argued for additional aggressive monetary tightening, the euro surged to its best level against the dollar in almost three weeks, and sterling soared to its highest level this month.
Prior to this week’s crucial U.S. inflation data, which could offer the Federal Reserve flexibility to halt the pace of rate hikes at its September 21 policy meeting, the greenback idled not far from a two-week low against a basket of peers.
During the early hours of the Asian session, the Euro EUR=EBS jumped to a high of $1.0130, a gain of 0.32% from Friday’s close.
The value of the pound GBP=D3 increased to $1.1681 from $1.1610, a gain of 0.23%.
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According to Libertex’s sources, ECB policymakers are increasingly concerned that they may need to hike their key interest rate to 2% or higher in order to stem record inflation in the euro zone.
Bundesbank President Joachim Nagel warned that “additional decisive steps must follow” if the trend in consumer prices does not improve over the coming months on German radio over the weekend.
After retreating from a 20-year high of 110.79 reached on Wednesday, the dollar index =USD, which measures the currency against six major rivals, was barely changed at 108.78. When it hit 108.35 in the previous session, it was the lowest it has been since August 30.
Investors are on edge before the release of the U.S. consumer price index report on Tuesday, even though Fed members kept up their hawkish rhetoric on Friday, the last day for such comments before a black-out period leading up to the Federal Open Market Committee’s meetings.
Governor Christopher Waller has voiced his support for “a big rise at our next meeting,” and St. Louis Fed President James Bullard has reaffirmed his proposal for a rate increase of 75 basis points.
Officials have “clearly stated the necessity for the FOMC to keep raising interest rates until there is strong evidence that inflation is dropping,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a client note.
He predicted the dollar will rise in the near and medium term, saying, “We assess the FOMC has much more work to do” regardless of the CPI report’s conclusion.
But on Thursday, the dollar rose 0.36% to 143.215 Japanese yen (JPY=EBS), nearing its 24-year high of 144.99 reached on Wednesday.
That came as the benchmark U.S. 10-year Treasury yield US10YT=RR, which the currency pair frequently tracks closely, remained at 3.315% in Tokyo trading, not far from last week’s nearly three-month high of 3.365%.
Over the weekend, a top government spokeswoman hinted at intervention again, stating in an interview with local television that the administration must take steps as necessary to offset excessive currency depreciation.
Although the Bank of Japan is the only major developed market central bank continuing stimulus, analysts are skeptical of its efficacy without support from the Federal Reserve and other major central banks.
According to National Australia Bank strategist Rodrigo Catril, “a coordinated effort is needed,” and “right present with major central banks fighting inflation through tighter policy,” worldwide government support for JPY seems improbable.
He also stated that the Bank of Japan should alter its ultra-easy policy “if it really wants to reverse JPY’s slide.” There is increasing tension.
The New Zealand dollar NZD=D3 fell by 0.07% to $0.6099, while the Australian dollar AUD=D dropped by 0.23% to $0.6831.
Bitcoin BTC=BTSP dropped 0.4% to $21,750 after briefly touching $22,350 for the first time since August 19. This comes as the cryptocurrency tries to stabilize after bouncing off a nearly three-month low at $18,540 last week.
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