Euro steadies as markets raise bets of ECB hike after inflation data

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The euro steadied against the dollar on Wednesday as rising inflation in Germany and Spain led investors to price in a bigger chance of an European Central Bank hike, while U.S. labour market data due later this week is set to give clues on the Federal Reserve rate path.

Spain and Germany inflation releases could give some indication on the bloc’s wider numbers due on Thursday.

Inflation in Germany’s most populous state, North Rhine-Westphalia (NRW), rose by 5.9 % year-on-year from 5.8% in July, supporting expectations that the European Central Bank’s tightening cycle might not end soon.

In Spain, consumer prices rose 2.6% year-on-year in August from 2.3% in July, and in line with the 2.6% expected by analysts polled by Reuters.

Money markets raised their bets on a September rate hike from the ECB, pricing in a 60% chance of a 25 basis-point move.

“A September hike at this stage could be more of a coin toss, but more importantly, we sense that the hawks will see it as a last chance to hike one final time,” said Benjamin Schroeder, senior rates strategist at ING.

“One key input to arrive at a final assessment is the inflation data this week,” he added.

The euro edged 0.1% higher to $1.0887. The dollar index – which measures the currency against six major peers including the yen and euro – slipped 0.1% to 103.47.

On Tuesday, the dollar index slumped 0.39% for its worst day in a month-and-a-half, after a slide in JOLTS job openings to a 2-1/2-year low spurred traders to pare bets for further U.S. rate hikes. But traders are now looking ahead to the monthly non-farm payrolls report due on Friday.

“Focus from here will turn to more key data due this week to shape the sentiment around whether the Fed has achieved the prefect landing or whether there are reasons to start getting concerned about the economy,” said Charu Chanana, market strategist at Saxo.

Money markets currently place 86.5% odds for the Fed to keep rates steady on Sept. 20, although the odds for a hike at the following meeting in November are close to 50/50.

Fed Chair Jerome Powell said on Friday that further tightening may be needed to cool still-too-high inflation, but also promised to move with care.

INTERVENTION TERRITORY

The dollar rose 0.35% to 146.38 yen . On Tuesday, it briefly surged to a 10-month peak at 147.375 leading into the JOLTS report.

Last autumn, levels this high spurred the first yen-buying intervention by Japanese officials in a generation.

Bank of Japan board member Naoki Tamura reiterated on Wednesday that the central bank was closely watching the effects on the economy of a weak yen when conducting policy.

Meanwhile, Australian inflation slowed to a 17-month low in July, reinforcing the case for the Reserve Bank of Australia to hold rates steady at its policy meeting next week.

The Aussie dollar dipped as much as 0.46% after the data but eventually shook it off to trade 0.12% lower at $0.6472.

The People’s Bank of China set the official mid-point for the yuan’s onshore trading firmer than the Reuters estimate, something it has done every day since the middle of the month.

The yuan weakened 0.2% in offshore trading to 7.2998 per dollar, but remained well above the Aug. 17 low of 7.3490.

Elsewhere, bitcoin eased 1.24% to $27,380, after surging more than $2,000 on Tuesday to hit a nearly two-week top at $28,142.

The world’s leading cryptocurrency was bought aggressively following a court ruling that could pave the way for a first-of-its-kind spot bitcoin exchange traded fund.

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