Reuters reports from London. The euro temporarily regained parity with the dollar on Thursday, as the dollar’s recent rise waned as investors waited to see if Federal Reserve Chair Jerome Powell would sound more hawkish at a symposium this week.
The euro, as well as currencies tied to broad investor sentiment, such as the Australian dollar, benefited from a more positive mood throughout markets.
However, after rising above parity in early European trade, the euro was back below it by 1045 GMT, with the mood dampened by the release of a carefully monitored indicator indicating that business confidence in Germany fell to its lowest level since June 2020 in August.
This week’s direction of the euro/dollar has been mostly driven by rising natural gas costs, which are connected with a weaker euro due to the region’s reliance on gas for energy. This, combined with concerns about the global economy, drove investors into dollars earlier this week.
“The key driver of the US dollar’s weakening overnight has been a brief easing of global growth fears,” said Lee Hardman, an analyst at MUFG, noting media reports that Chinese authorities are ramping up economic assistance measures with further infrastructure financing planned.
Investors are also expecting the Fed to reaffirm its commitment to crushing inflation at its annual meeting in Jackson Hole, Wyoming, where Powell is scheduled to speak.
The dollar is still strong.
The US dollar index, which measures the greenback against six currencies, was recently down 0.2% at 108.39, although it was still close to its best level since September 2002, when it hit 109.29 in mid-July.
The euro has risen as much as 0.5% to $1.03 after touching a 20-year low below parity this week. It was the last trade at $0.9978, up 0.1% on the day.
“As summer comes to an end, the USD stays historically strong. The Fed’s rate rises to combat inflation have been helpful, particularly in comparison to the European Central Bank’s slower pace (ECB). BofA analysts John Shin and Athanasios Vamvakidis said in a research note. They have set a year-end goal of $1.05.
“However, the risks of future Fed action remain high, as do mounting geopolitical concerns about oil, gas supply, and Europe in the winter, which might put further negative pressure on the euro,” they added.
The Australian dollar gained 1% to $0.6972, while the Japanese yen gained 0.5% and sterling gained 0.3%, with the latter aided by money markets pricing in a faster pace of Bank of England rate rises to 4.2% by June next year.
The higher Australian dollar was also aided by China’s yuan rising from a two-year low, which was fueled by firmer-than-expected government guidance, which traders saw as a hint that authorities are becoming increasingly concerned about the Chinese currency’s steep losses. [CNY/]
