Euro clings to parity as markets await US inflation data

Euro clings to parity as markets await US inflation data
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SINGAPORE (July 13): The euro hovered a whisker above parity on the dollar on Wednesday (July 13) ahead of US inflation data, with traders wary a sky-high reading could force it to lows not seen in decades.

The greenback was firm in Asia trade, with 50-basis-point rate hikes in New Zealand and South Korea that came in as expected failing to offer much support to the kiwi or won. 

The euro languished at US$1.0036. It is down nearly 12% this year and fell to a 20-year low on Tuesday as the war in Ukraine has triggered an energy crisis that has hurt the continent's growth outlook.

It dropped as low as US$1.00005 on the most widely used Electronic Broking Services' dealing platform and touched US$1 on Reuters dealing overnight.

Analysts say it could fall further if fast-rising US consumer prices keep investors betting on US rate rises.

Economists forecast that headline US inflation accelerated to 8.8% year-on-year in June, a 40-year high, which is likely to reinforce expectations of interest rate hikes and help the dollar.

"I think the US dollar will keep increasing if the US CPI (Consumer Price Index) is stronger than expected," said Commonwealth Bank of Australia strategist Joe Capurso in Sydney. "There's definitely a very good chance that the euro falls below parity tonight (Wednesday)."

The euro fell below parity with the Swiss franc last month and is flirting with a drop beneath its 200-day moving average against the pound.

Weakness in the euro and yen has lifted the US dollar index, which scaled a two-decade peak of 108.560 this week and was hovering at 108.13 in Asia trade on Wednesday.

The Japanese yen has taken a beating this year as the Bank of Japan sticks with its ultra-easy monetary policy in contrast with tightening nearly everywhere else.

It was under pressure at 137.055 per dollar on Wednesday after hitting its lowest since 1998 on Monday at 137.75.

The Australian dollar steadied at US$0.677, just above a two-year trough of US$0.6712 made on Tuesday. 

Sterling has also slipped on the stronger dollar and analysts see it adrift in the wake of the resignation of British Prime Minister Boris Johnson last week.

It last bought US$1.19025, with gross domestic product data due at 0600 GMT being the next hurdle. Traders expect May brought zero growth.

Eight Conservatives are vying to succeed Johnson.

"The combination of slow growth, debt and high inflation is likely to prove very tricky for the new Tory leadership," said Rabobank senior strategist Jane Foley. "Sterling may suffer a lack of fresh direction until the new PM (prime minister) is in place."

In New Zealand and South Korea, the rate hikes came in largely as expected. The South Korean won was marginally firmer, while the New Zealand dollar dipped a fraction to US$0.6127 — barely above Monday's two-year low of US$0.6098.

"There was no real change in tone," said Jason Wong, a strategist at BNZ in Wellington, of the Reserve Bank of New Zealand decision, adding that the US CPI is likely to drive the kiwi's next move. "We're at the whim of the US dollar."

Currency bid prices at 0247 GMT

Description

RIC

Last

US close previous session

% change

YTD % change

High bid

Low bid

Euro/dollar

<EUR=EBS>

US$1.0031

US$1.0036

-0.05%

-11.76%

+1.0045

+1.0023

Dollar/yen

<JPY=EBS>

137.1350

136.8200

+0.29%

+19.29%

+137.2450

+136.9500

Euro/yen

<EURJPY=EBS>

137.56

137.37

+0.14%

+5.54%

+137.7400

+137.1300

Dollar/Swiss

<CHF=EBS>

0.9826

0.9821

+0.09%

+7.77%

+0.9829

+0.9816

Sterling/dollar

<GBP=D3>

1.1897

1.1885

+0.11%

-12.03%

+1.1901

+1.1871

Dollar/Canadian

<CAD=D3>

1.3017

1.3021

+0.05%

+3.03%

+1.3034

+1.3016

Aussie/dollar

<AUD=D3>

0.6761

0.6757

+0.07%

-6.97%

+0.6766

+0.6742

NZ dollar/dollar

<NZD=D3>

0.6115

0.6127

-0.18%

-10.64%

+0.6137

+0.6106