Dollar Climbs After Fed Minutes; Eurozone CPI Data in Focus

Dollar Climbs After Fed Minutes; Eurozone CPI Data in Focus

By Peter Nurse

The U.S. dollar climbed higher in early European trade Thursday after the minutes from the last Federal Reserve meeting pointed to more monetary tightening ahead.

At 03:20 ET (07:20 GMT), the US Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 106.828, more than 1% higher in the last week.

The Federal Reserve's minutes for its July meeting stated that the central bank policy makers saw "little evidence" yet that pressures were easing, indicating that there would be no immediate slowdown in the interest rate rises until prices come under control.

“The question is whether the Fed wants to use these minutes as a communication tool to push back against the view of a 2023 easing cycle. Post-meeting rhetoric from the Fed suggests that this is more likely to be the case,” said analysts at ING, in a note.

Attention will turn to the latest economic data later in the session, with weekly jobless claims and the Philadelphia Fed manufacturing index set to show a cooling U.S. economy.

Elsewhere, EUR/USD fell 0.3% to 1.0151 ahead of the release of the final Eurozone CPI data for July, which is expected to confirm annual consumer inflation at 8.9%.

The inflation outlook in the region has failed to improve since the European Central Bank’s July rate hike, according to ECB board member Isabel Schnabel, implying she would vote for another large interest rate increase next month even as recession risks harden.

The ECB hiked by 50 basis points last month fearing that inflation was at risk of getting entrenched.

GBP/USD fell 0.3% to 1.2010, weakening the day after U.K. consumer prices climbed above 10.1% on an annual basis in July, the highest rate of inflation since early 1982.

The Bank of England has been raising interest rates since December in an attempt to curb the soaring inflation, but this has done little to help sterling as the more hawkish policy path comes at the expense of future growth conditions.

The BOE recently warned that the country’s economy would likely enter recession in the fourth quarter, and it could last for over a year.

USD/JPY rose 0.2% to 135.26, with higher U.S. yields continuing to weigh on the Japanese currency, while the risk-sensitive AUD/USD fell 0.3% to 0.6913.

USD/CNY rose 0.2% to 6.7939, with the Chinese yuan trading near three-month lows as a profit warning from major real estate developer Country Garden Holdings raised fresh concerns about the slowdown in the world’s second largest economy.

USD/TRY rose 0.1% to 17.9641, with Turkey’s central bank set to leave its benchmark at 14% for an eighth consecutive month at a meeting later Thursday.

The Turkish lira is down about 1.5% since the previous rate meeting in July, with the currency struggling to cope with the world’s most negative interest rates when adjusted for inflation.