Dollar, euro up as inflation data starts to flow

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Dollar, euro up as inflation data starts to flow

The dollar and euro went up on Thursday as investors switched to inflation for more hints on central banks' next rate moves, as concerns over the banking sector receded.

Inflation data from German states, used to calculate a preliminary inflation figure for the euro zone's largest economy due to 1200 GMT, has started to come in.

Consumer prices in the state of North Rhine Westphalia increased by 0.6 per cent month-on-month in March, compared to a 1 per cent increase in February, and were up by 6.9 per cent year-on-year, from 8.5 per cent previously.

Spain's consumer prices rose 3.3 per cent year-on-year in March, the slowest pace since the 12 month period through August 2021 and less than expected by analysts.

Francesco Pesole, FX strategist at ING, said this week s inflation figures are set to be an important driver of the market's rate expectations.

Since July, the ECB has increased its key deposit rate by 350 basis points to 3 per cent, as it tries to tame surging inflation. There are currently two 25 basis point rate hikes by the European Central Bank that are fully priced in September, according to Refinitiv.

Isabel Schnabel, board member of the European Central Bank, said on Wednesday that underlying inflation in the euro zone is proving to be sticky and that the recent fall in energy costs may not pull it down as fast as some expect.

The euro was up 0.07 per cent to $1.0851, but was on track to end the month with a 2 per cent gain.

The dollar index, which measures the currency against six major peers, was 0.1 per cent lower at 102.52, as banking crisis worries faded. It was on course to clock a 2 per cent decline in March due to market tumult triggered by the collapse of the U.S. lender Silicon Valley Bank and culminated in the emergency takeover of Credit Suisse by rival UBS.

The Federal Reserve may have to relent in its fight against inflation and pause rate hikes, and the dollar was under pressure due to the possibility of inflation and pause rate hikes.

Investor nerves have calmed after steps taken by regulators and with no more signs of cracks in the financial sector.

Christopher Wong is a currency strategist at OCBC in Singapore and said that the broader risk sentiment appears to have been sustained as bank contagion concerns faded.

The data on U.S. personal consumption expenditures due on Friday will provide further clues on inflationary pressures in the world's largest economy.

The market is now focused on the upcoming U.S. PCE data, which is seen as the Fed's favourite inflation parameter, according to Tina Teng, an analyst with CMC Markets.

The tech behemoth Alibaba announced plans on Tuesday to split into six units, which investors have taken as a sign that Beijing's regulatory crackdown on corporations is ending.

The Japanese yen was up 0.4 per cent to 132.35 per dollar after falling 1.5 per cent on Wednesday. The currency was volatile in the run-up to the end of the Japanese fiscal year on Friday.