TOKYO/LONDON, Aug 22
The euro remained close to its highest level in over a year against the U.S. dollar on Thursday. This comes after positive business activity data from the euro zone, with traders now awaiting wage growth figures that could influence future interest rate decisions by the European Central Bank (ECB).
The euro was steady at $1.1146, just below the $1.11735 peak on Wednesday, its strongest since July 2023.
The euro has benefited recently from a weaker dollar, as expectations grow that the Federal Reserve may cut interest rates due to signs of a slowing U.S. job market.
Thursday’s focus is on developments in Europe. The euro initially dipped after a report showed German business activity shrank more than expected for a second straight month in August. However, it bounced back after stronger-than-anticipated data from across the eurozone.
Next is the release of wage growth data for the euro area at 0900 GMT, which will shape expectations for ECB policy decisions and the euro’s direction.
“A significant slowdown in euro area wage growth for the second quarter of 2024 would support a rate cut in September,” said Andrzej Szczepaniak, senior European economist at Nomura.
He noted that recent data from Germany and France suggest wage growth could ease to below 4% from 4.7% in the first quarter.
Meanwhile, the British pound held steady at $1.3095, after reaching a 13-month high of $1.31195 in the previous session. The U.S. dollar gained 0.15% against the yen, trading at 145.46 yen.
These moves left the dollar index, which tracks the currency against the euro, pound, yen, and three other currencies, up 0.1% at 101.22.
The index dipped to 100.92 on Wednesday, its lowest this year, as markets grew more confident that the Federal Reserve is on track for interest rate cuts starting in September.
Traders are now pricing in a 38% chance of a 50 basis point rate cut at the Fed’s September 17-18 meeting, up from 33% a day earlier, with a 25 basis point cut fully expected, according to the CME Group’s FedWatch Tool.
The Fed’s latest guidance came from minutes of its July 30-31 meeting, released on Wednesday, showing officials strongly leaning toward a rate cut in September. Some officials were even ready to reduce rates in July.
Also on Wednesday, a Labor Department report showed U.S. employers added far fewer jobs than originally reported over the past year, further supporting the case for rate cuts.
Investors are now awaiting U.S. weekly jobless claims data due later on Thursday and a key speech by Fed Chair Jerome Powell at the central bank’s annual Jackson Hole symposium on Friday.
Other central bankers, including Bank of England Governor Andrew Bailey and ECB Chief Economist Philip Lane, will also speak at Jackson Hole. Meanwhile, Bank of Japan Governor Kazuo Ueda will testify on Friday in a special session of parliament about the Bank of Japan’s recent surprise rate hike.
Ueda’s hawkish stance led to a quick sell-off in Japanese stocks and a reversal of bearish bets on the yen. However, Deputy Governor Shinichi Uchida later reassured markets, saying policy wouldn’t be tightened during volatile periods.
“With the Nikkei largely recovering its losses, Ueda may comfortably maintain his stance that further rate hikes could be needed if economic forecasts are met while emphasizing that financial stability will also be a consideration,” analysts at DBS wrote in a note.
Elsewhere, the Swiss franc was slightly stronger, with the dollar down 0.16% at 0.8504 francs, while the Australian dollar was flat at $0.6745.
