Euro clings to peg as markets await US inflation data

A euro banknote is displayed on US dollar banknotes in this illustration taken February 14, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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  • Euro still above $1 but US CPI a severe test
  • RBNZ, BOK hike rates but currencies near lows against USD
  • British pound adrift as markets wait for Tories to pick leader

SINGAPORE, July 13 (Reuters) – The euro hovered a hair above parity with the dollar on Wednesday as traders feared the single currency could be forced to levels not seen in decades if data on the US inflation, which is expected to be released later in the global day, shows an exorbitant reading.

The greenback was firm in Asian trading, and neither the New Zealand dollar nor the South Korean won benefited from the expected 50 basis point interest rate hikes by their central banks. Read more

The euro languished at $1.0036. It has fallen nearly 12% this year and fell to its lowest level in 20 years on Tuesday as war in Ukraine sparked an energy crisis that has hurt the continent’s growth prospects.

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It fell as low as $1.00005 on the most widely used electronic brokerage services trading platform and touched $1 on Reuters trades overnight.

Analysts say it could fall further if rapidly rising US consumer prices prompt investors to bet on US rate hikes.

Economists forecast that headline inflation in the United States accelerated to 8.8% year-on-year in June, a 40-year high, which should bolster expectations of higher interest rates and help the dollar .

“I think the US dollar will continue to rise if the US CPI is stronger than expected,” said Joe Capurso, strategist at Commonwealth Bank of Australia in Sydney. “There is certainly a very good chance that the euro will fall below parity tonight.”

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

Euro and yen weakness lifted the US dollar index, which hit a two-decade high at 108.560 this week and hovered at 108.18 in Asian trade on Wednesday.

The Japanese yen has taken a hit this year as the Bank of Japan sticks to its ultra-loose monetary policy in contrast to tightening almost everywhere else.

It was under pressure at 137.05 to the dollar on Wednesday after hitting its lowest since 1998 on Monday at 137.75.

The Aussie dollar was flat at $0.6767, just above a two-year low of $0.6712 hit on Tuesday.

The pound has also slipped against the stronger dollar and analysts see it adrift following the resignation of British Prime Minister Boris Johnson last week.

It last bought $1.19, with gross domestic product data due at 06:00 GMT, the next hurdle. Traders expect May to bring zero growth.

Eight Tories are vying for Johnson’s succession. Read more

“The combination of slow growth, debt and high inflation is likely to prove very challenging for the new conservative leadership,” said Rabobank senior strategist Jane Foley. “Sterling could suffer from a lack of new direction until the new prime minister is in place.”

In New Zealand and South Korea, rate hikes went largely as expected. The South Korean won was slightly firmer, while the New Zealand dollar fell a fraction to $0.6131 – barely above Monday’s two-year low of $0.6098.

“There hasn’t been a real shift in tone,” Jason Wong, a strategist at BNZ in Wellington, said of the Reserve Bank of New Zealand’s decision, adding that the US CPI was likely to drive the next move of the kiwi. “We are at the mercy of the US dollar.”

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Bid rates for currencies at 05:19 GMT

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Tokyo spots

Spots of Europe

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Reporting by Rae Wee and Tom Westbrook in Singapore; Editing by Jacqueline Wong, Edwina Gibbs and Simon Cameron-Moore

Our standards: The Thomson Reuters Trust Principles.

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