The common currency dropped against the greenback today. New data showed that inflation in the euro area was lower than traders feared. That means there’s less chance for the European Central bank to hike interest rates. While declining inflation is good news, the latter part sent the euro into bearish territory.
According to the report, euro area inflation dropped to 8.5% last month from January’s 8.6% reading. That was mainly due to lower energy prices. However, it is still higher compared to a predicted 8.2%. Despite the euro’s decline, investors’ reaction to the data wasn’t very strong.
On Wednesday, the single currency jumped by 0.9% against the dollar, hitting its highest point in a month. Prices in German soared more than expected last month, along with France’s and Spain’s inflation. This news encouraged traders’ hopes about further ECB rate hikes, supporting the euro.
Ben Laidler, the Global Markets Strategist at Etoro in London, noted that inflation was higher than forecasted but maybe not as bad as feared, considering expectations had changed after national data in the last few days. He thinks that the central bank might proceed with a 50-basis point hike pace. But that would still be hawkish.
On Thursday, the euro dropped by 0.5% versus the dollar, exchanging hands at $1.0618. Meanwhile, the British Pound tumbled by 0.46% to $1.1970 due to the Bank of England Governor Andrew Bailey’s comments. He stated that nothing was decided about future interest rate hikes.
On the other hand, the U.S. dollar index surged forward by 0.43% to 104.82. A jump in U.S. Treasury yields supported the currency. Federal Reserve official Neel Kashkari also noted that a 50-basis point rate increase was possible at the agency’s next meeting in March.
What about the Asian currencies?
The Japanese yen declined by 0.3% to 136.65 to the USD on Thursday. At the same time, the Australian and New Zealand dollars plummeted, along with the Chinese yuan, after gaining substantially in the previous session.
Emerging Asian currencies also traded broadly lower today. Thailand’s baht dropped by 0.5%. Meantime, China’s yuan shaved off 0.4%, and the Singapore dollar fell by 0.3%. Moreover, the Philippine peso and Indonesia’s rupiah both tumbled by 0.2% each.
On the other hand, the South Korean won skyrocketed by 0.7%. It was the only gainer in the region. On Wednesday, robust factory data from China showed that the country’s economy is growing faster than investors expected, causing the yuan’s short-lived rally.