The U.S. dollar moved higher in early European trade on Wednesday, as the euro lingered near parity ahead of the release of crucial U.S. inflation data, which might solidify the Federal Reserve’s commitment to more substantial rate hikes.
At 3:10 a.m. ET (07:10 GMT), the Dollar Index, which measures the value of the US currency against a basket of six other currencies, was up 0.1 percent to 107.977, still close to the 20-year high of 108.560 set earlier this week.
The EUR/USD was traded at 1.0038, which is pretty much the same as Tuesday, when it hit a 20-year low just above parity.
Attention Headline inflation in the United States is expected to rise to 8.8 percent year on year in June, up from 8.6 percent in May and a 40-year high.The data will be released later on Wednesday.
A number like this is likely to make people more confident that the Federal Reserve will raise interest rates again, in addition to the big 75 basis point increase they gave in June, which was the biggest increase since 1994 and good for the dollar.
On the other hand, fears of a potential energy supply shortage are putting pressure on the single currency. This could happen if Russia limits gas exports to Europe even more, which would hurt the Eurozone’s economy and could make the European Central Bank change its plan to raise interest rates this summer.
ING analysts said in a note, “Can the [EUR/USD] pair find some support and stage at least a mini-rebound, or will it drop below parity?” “Given the current state of the global economy, we feel the second scenario is more likely, and even while a return to 1.0500 in the fall remains a distinct possibility, a brief decline to 0.9800-0.9900 in the next few days appears possible.”
The USD/JPY climbed 0.2 percent to 137.14, not far from its highest level since 1998, which was set on Monday at 137.75, as the Bank of Japan maintained its accommodative monetary policy stance despite the Fed’s vigorous tightening.
GBP/USD climbed 0.3% to 1.1924, lifted by news that the U.K. economy expanded unexpectedly in May, with GDP expanding 0.5% on the month and health services being a major growth driver.
In the meantime, eight Conservatives will vie to succeed Boris Johnson as party leader and British prime minister on Wednesday, after receiving sufficient nominations from their colleagues to advance to the first round of voting.
“We believe the impact of the leadership battle on sterling will be limited,” stated ING. “GBP/USD is very sensitive to changes in the dollar and outside factors, and a further drop to the 1.16-1.17 range is not impossible at this time.”
Risk sensitive AUD/USD increased by 0.1 percent to 0.6764, while NZD/USD declined by 0.1 percent to 0.6130, as New Zealand’s central bank lifted interest rates by 0.5 percentage points for the third consecutive meeting.
The USD/CAD fell by 0.1 percent to 1.3015 before the next Bank of Canada meeting. At that meeting, rates are likely to go up by 75 basis points, from 1.5 percent to 2.25 percent, as the central bank tries to stop inflation from getting out of control.
