SINGAPORE LONDON The euro was at a 10 month high against the dollar on Thursday ahead of a European Central Bank meeting on Thursday, which markets expect a half-percentage point rate increase, a day after the U.S. Federal Reserve slowed the pace of its rises to 25 basis points.
The Fed said that it had turned a corner in the fight against inflation, its first explicit acknowledgment that price increases are slowing, underpinning market expectations that the end of the central bank's rate-rise campaign is near, and that cuts could follow.
The dollar's biggest overnight dive occurred after Fed Chair Jerome Powell told a post- meeting news conference that the disinflationary process has started, but he also signalled that interest rates would continue to rise and that cuts were not in the offing.
Ray Attrill, head of FX strategy at National Australia Bank NAB Powell, said that it was a relief that there was nothing there to challenge the market's prevailing view, but that doesn't dissuade the market from saying some time might be six months, rather than two years. The Bank of England will hold a rate decision on Thursday, with the decision coming at 1200 GMT before the ECB's 1315 GMT. Markets expect a half-point increase from the British central bank.
The pound was up 0.47 per cent on Wednesday, held at $1.236, and the dollar fell against the Japanese yen, dropping to as low as 128.07, its lowest in two weeks.
On Thursday, the euro hit $1.1034 in Asian trading, its highest since April 4, having jumped 1.2 per cent on Wednesday. It was the last time it was at $1.100, flat on the day, as the focus turned to the ECB meeting.
Chris Turner global head of markets at ING said a 50 bp hike is widely expected as a hawkish message that will support market pricing of a further 75 -- 100 bp of tightening into the summer.
A narrowing in rate differentials is going to be a bigger driver of EURUSD this year and should carry it to the $1.15 area in the second quarter.
The derivatives market has the smallest premium over euro equivalents since late 2021, according to Turner.
The Australian dollar, which gained 1.2 per cent on the day, hit a new eight-month high of $0.7158 in early Asia trade Thursday, and the Swiss franc, which fell to its strongest since late 2021 on Thursday, among the sharper Wednesday movers were the Australian dollar, which gained 1.2 per cent and hit a new eight-month high of $0.7158.
The U.S. dollar index fell over 1 per cent to a new nine-month low of 100.80 on Wednesday, and traded just above that on Thursday, against a basket of currencies.
The US non-farm payrolls report will be the next test of the Fed's fight against inflation, though official figures showed on Wednesday that job openings had unexpectedly risen in December, pointing to a still tight labour market.