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Euro Hits Five-Month Low Against Dollar Following ECB Rate Hike

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Euro Hits Five-Month Low Against Dollar Following ECB Rate Hike

The euro fell to its lowest level in over five months against the dollar on Thursday, as the European Central Bank’s (ECB) recent interest rate hike led market participants to believe it could be the last of its kind. The common currency slipped below $1.066 after the ECB’s announcement and continued to decline even after European markets closed, dropping by up to 0.9% to reach $1.0632, a level not seen since March 20.

The euro’s depreciation was not confined to the dollar but was also noticeable against all other developed world currencies. Bipan Rai, CIBC’s global head of foreign exchange strategy based in Toronto, predicts that the currency could further decline to $1.05 in the upcoming weeks.

This forecast is largely predicated on the superior economic performance of the US. As the Federal Reserve contemplates additional rate hikes, Christine Lagarde, President of the ECB, suggested that Thursday’s rate increase should be “sufficient” as growth remains “slow and sluggish.”

Rai emphasized that current US data indicates a resilient real activity despite current rate settings. This resilience implies the potential for more tightening measures from the Federal Reserve or a less aggressive easing approach compared to other central banks in 2024.

Since peaking for the year in July, the euro has dropped over 5%. This decline is attributed not only to stronger growth prospects in the US but also rising commodity prices which impact Europe’s terms of trade negatively.

Brad Bechtel, Jefferies LLC’s global head of foreign exchange based in New York, noted greater demand for US assets compared to European ones. However, he pointed out that this shift has not been fully reflected in currency values yet.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.


Wells Fargo sees slower US dollar decline through 2025

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Wells Fargo updated its currency market forecast, anticipating a more gradual depreciation of the U.S. dollar over the medium term than previously expected. The bank’s outlook suggests a moderate decline in the value of the dollar through much of 2025.

This projection is based on an anticipated slowdown in U.S. economic growth and a prolonged phase of monetary policy easing by the Federal Reserve.

The report highlighted that certain currencies, including the yen and the Australian dollar, might outperform the U.S. dollar in the coming year. Wells Fargo’s analysts believe that these currencies could benefit if global financial conditions remain favorable.

Additionally, the bank noted that this environment would also be supportive of currencies from emerging markets that are typically more sensitive to risk perceptions.

Wells Fargo’s analysis also pointed to political and policy developments as potential risk factors. The bank cited scenarios that could emerge from the U.S. elections, such as more expansionary fiscal policies and increased tariffs.

If such events were to occur, they could lead to a scenario where the U.S. dollar remains stronger for a longer period than currently anticipated by Wells Fargo’s analysts.

The bank’s currency forecast is closely watched by investors and policymakers, as it provides insights into how major currencies might perform against the U.S. dollar. The strength or weakness of the dollar has significant implications for international trade, investment flows, and the pricing of commodities and other assets.

In conclusion, while Wells Fargo continues to expect the U.S. dollar to depreciate moderately over the next few years, the bank has adjusted its outlook to reflect a slower pace of decline.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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Commodity currencies struggle, carry trade churn helps yen, Swiss franc

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By Tom Westbrook and Alun John

SINGAPORE/LONDON (Reuters) -Commodity currencies slid to multi-week lows on Wednesday on weakening raw material prices, with the heaviest selling against the yen which surged to its highest in two months as short sellers bailed out ahead of next week’s central bank meeting.

The Canadian dollar hit a three-month low of C$1.38 per dollar, ahead of a likely second rate cut in as many months by the Bank of Canada at its meeting later in the day.

The Australian dollar fell as much as 0.5% and at $0.6583 was only a few pips from chart support at the early June low. It fell more than 1% on the yen to 101.79 yen and is down nearly 7% against the Japanese currency in two weeks. [AUD/]

The New Zealand dollar fell 0.6% to a near three-month low of $0.5914.

The moves tracked falling prices for industrial metals such as iron ore and , which made 3-1/2 month lows on a gloomy outlook for Chinese demand, and risk aversion in stock markets following some disappointing U.S. earnings. [MET/L]

“We’re seeing softer demand in China and Asia in general and the and just being pulled down,” said Jason Wong, senior markets strategist at BNZ in Wellington.

The euro suffered after soft business activity dataand was last down 0.1% against the dollar at $1.10842 and fell 0.14% on the pound to 83.99 pence as the picture looked perkier in Britain.. [GBP/]

But the European common currency continued to climb against peers to the north, and hit a new eight-month top on the Norwegian crown of 12.00 crowns and a two-month high of 11.727 on the Swedish crown.

“These are the two least liquid currencies in G10, and we suspect markets are particularly punishing this aspect and rebuilding those shorts that had been trimmed throughout May and June,” said Francesco Pesole FX strategist at ING.

In Asia, the risk of a rate hike for Japan and recent rounds of suspected currency intervention have speculators rushing to close what had been profitable “carry” trades funded in yen. The Bank of Japan reviews policy next Tuesday and Wednesday.

In a carry trade investors borrow in a low-yielding currency to invest in higher-yielding assets denominated other currencies.

Dollar/yen went down nearly 1% on Tuesday and fell another 0.7% on Wednesday to its lowest since mid-May at 154.28 per dollar. The yen is the best performing G10 currency against the dollar in July so far.

Moves in other pairs have been larger, with the euro dropping 1.3% on the yen Tuesday and a further 0.86% to an 11-week low of 167.43 on Wednesday.

Mexico’s high-yielding peso dropped 2% on the yen on Tuesday and another 1.1% on Wednesday.

© Reuters. FILE PHOTO: Banknotes of Japanese yen are seen in this illustration picture taken September 22, 2022. REUTERS/Florence Lo/Illustration/File Photo

The churn in yen funded carry trades also had an effect on the other favoured funding currency, the Swiss franc, against which the dollar was down 0.43% at 0.8875 francs and the euro was down 0.57% at 0.9620.

Later in the week, markets are waiting on U.S. GDP and core PCE data to test expectations for two U.S. rate cuts over the rest of this year.

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Dollar edges higher, euro slips after weak PMI data

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on – The U.S. dollar edged higher Wednesday, while the euro fell after the release of disappointing eurozone activity data pointed to further ECB rate cuts ahead.  

At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.232, extending an overnight rebound.

Dollar looks to political uncertainty

The dollar has benefited from the volatility surrounding the U.S. political situation. 

Vice President Kamala Harris was seen garnering strong support from the Democratic Party after her endorsement as its presidential nominee by President Joe Biden. A Reuters/Ipsos poll also showed her slightly ahead of Republican nominee Donald Trump.

That said, Trump remains the favorite to win November’s presidential election.

“The dollar losses from the softer June CPI report have now been erased in most USD crosses, with JPY, CHF and GBP standing out as a few key winners,” said analysts at ING, in a note. 

“Looking at the bottom of the FX scorecard, we sense the Trump trade is still very much at play.”

That said, Friday sees the release of U.S. inflation figures for June, and the Fed’s preferred gauge of inflation could change foreign exchange sentiment quickly.

Euro lower after weak activity data

In Europe, fell 0.2% to 1.0835, following the release of eurozone business activity data for July.

Growth in eurozone business activity stalled in July, with the HCOB’s preliminary dropped to 50.1 this month from June’s 50.9, barely above the 50 mark that separates growth from contraction. 

The kept interest rates on hold at 3.75% last week, but further signs of slowing regional growth point to further rate cuts this year.

Markets are pricing in almost two ECB rate cuts for the rest of the year.

traded 0.1% lower at 1.2898, falling back from the 1.30 level that the pair saw last week for the first time in a year.

Data showed that British business activity picked up this month, bolstered by the fastest manufacturing growth in two years and the strongest inflow of new orders since April 2023.

July’s S&P Global Flash rose to 52.7 from June’s six-month low of 52.3.

Elsewhere, rose 0.1% to 1.3796, near a three-month low for the Canadian dollar ahead of a rate-setting meeting later in the session.

Markets are pricing in an 84% chance of a 25 basis point rate cut, which would be the BoC’s second cut in as many months.

Yen goes from strength to strength 

In Asia, fell 0.5% to 154.81, with the pair falling to its lowest level since early June. 

The yen’s gains came as an extension of a recovery from last week, where the currency strengthened sharply amid suspected currency market intervention by the government. 

Some positive purchasing managers index data also benefited the yen, as an unexpected contraction in manufacturing activity was largely offset by a rebound in services activity. 

Focus is now squarely on a meeting next week, with recent inflation and PMI readings sparking increased speculation the central bank will raise interest rates by 10 basis points.

edged higher to 7.2773, close to highs last seen in November, as sentiment towards China remained dour amid persistent concerns over slowing economic growth in the country. 


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