Euro finds footing on hawkish policy remarks, lower energy prices By Reuters

© Reuters. FILE PHOTO: U.S. dollar and euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Tom Westbrook

SINGAPORE (Reuters) – The euro was near a 15-year high against the yen and was firm against the dollar on Thursday, following hawkish comments from European policymakers and the prospect of a decline energy prices.

At $1.0703, the common currency resisted the greenback’s rise after the European Central Bank’s chief economist said he had not seen enough progress in controlling inflation.

Overnight, the euro rose to its highest level since 2008 at 161.73 yen, taking a step forward since the Bank of Japan left short-term rates unchanged last week as investors viewed the pair as safer than facing the risk of dollar/yen intervention.

The euro is also up 0.5% this week at 87.14 pence.

Irish central bank president Gabriel Makhlouf said on Wednesday that further interest rate hikes should not be ruled out, something markets are not expecting at all, while the president of the Bundesbank, Joachim Nagel said the “last step” towards the inflation target could be the most difficult.

“As the market focuses on the prospects of rate cuts from G10 central banks next year, many of the respective central bankers are pushing back against such speculation,” said Jane Foley, senior strategist at Rabobank.

“As long as inflation remains above target, policymakers will likely want to maintain the risk of further tightening, especially since a significant fall in market rates could worsen inflationary risks.”

The unloved yen was not really boosted by the fall in US Treasury yields, with the 10-year rate marking its lowest level since mid-September overnight, but the yen returned to around 151 to a dollar.

It was last at 150.99 in morning trading in Asia.

Elsewhere, falling oil prices were a welcome relief in Europe, but weighed on commodity currencies such as the Australian and New Zealand dollars and the Canadian dollar.

The Australian dollar fell 0.5% overnight and settled at $0.6405, just above its 50-day moving average.

The weekly drop appears to be the biggest since June, as the central bank appeared to raise the bar for further hikes after raising rates on Tuesday. The New Zealand dollar also saw a slight decline overnight to $0.5910. The Norwegian krone is not far from its lowest levels of the year.

Former Italian Prime Minister and ex-ECB chief Mario Draghi told a Financial Times conference last night that Europe was almost certainly heading into a recession, driven in part by rising costs of ‘energy.

Yet futures are now down 12% over two weeks. Record gas inventories in Europe also continue to climb, as a warm start to autumn delays the onset of heating demand and high prices discourage industrial use and encourage continued imports.

In Asia, offshore overnight trading hit a two-month high. Reuters reported that Chinese authorities had asked Ping An Insurance Group to take a majority stake in troubled property developer Country Garden.

Consumer prices in China fell in October, data showed Thursday, fueling expectations of a cut in interest rates.

“The market is increasingly expecting further rate cuts from China’s central bank given weak inflation figures and a still limited economic recovery,” said Michael Wan, a currency analyst at MUFG in Singapore.

Later in the session, the focus will be on Fed Chairman Jerome Powell’s speech.

In the Middle East, Israeli forces fought Hamas militants point-blank in Gaza City, but strong dollar sales from the Bank of Israel helped return the dollar to pre-war levels. 3.83 per dollar.

(This story has been corrected to show that the yuan hit a two-month high, not a two-month low, against the dollar in paragraph 15.)

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