The dollar started the week on an upbeat note and European stocks rose as traders priced in narrowing the policy divergence between the US Federal Reserve and other major central banks. .
An index that measures the greenback against six other currencies fell 0.6%, while the euro gained 1% to trade above par with the US currency at $1.014. The British pound also rose, adding 0.9 percent to just under $1.17.
The euro has fallen by more than a tenth this year, while the US currency is up about 13% – then pushed higher by strong interest rate hikes and hawkish messages from the Fed on the way forward of monetary policy.
Monday’s moves in money markets come days after the European Central Bank raised borrowing costs by 0.75 percentage points to 0.75% and indicated more gains to come – signaling a more assertive approach to addressing inflation in the euro area.
Jonathan Petersen, a senior market economist at Capital Economics, wrote: The catalyst for the dollar’s decline, also fell on Friday, “seems to be the ongoing hawkishness of the ECB and the recovery of risk appetite”.
Investors will scrutinize new US inflation data due on Tuesday for clues about the future path of rate hikes for the world’s largest economy. Analysts polled by Reuters expect the consumer price index in August to hit 8.1 percent year-on-year, down from 8.5 percent in July.
Lower-than-expected CPI numbers, partly due to falling gasoline prices in the US, may further weaken investor sentiment towards the greenback. By comparison, Europe is still gripped by an energy crisis, which is causing inflationary pressures.
In the US “according to our forecast, inflation has peaked and. . . Analysts at SEB wrote: They added that the pace of price growth could vary between the US and Europe this week, when UK CPI figures are also due.
The dollar has traditionally been seen as a haven asset during times of economic stress. “We have a lot of traditional investors hiding in dollar assets; Mark Tinker, Chief Investment Officer at Toscafund, said. “That means there’s a lot of people worried about the dollar turning around.”
The market is pricing in the possibility of a 0.75 percentage point increase in interest rates at the Fed’s next monetary policy meeting in late September, which would mark the third consecutive increase of such magnitude. The central bank’s current target range is 2.25% to 2.50%.
Fed Governor Christopher Waller on Friday in favor of “another substantial increase” on interest rates this month, said on the last day that central bank officials could make public comments ahead of the upcoming policy meeting.
European stocks rose on Monday, with the Stoxx 600 index in the region up 1.1% in afternoon trade, Germany’s Dax index up 1.7% and London’s FTSE 100 up 1.3%. extended the increase compared to the previous session. U.S. stock futures also rose, with contracts tracking the broad S&P 500 up 0.6 percent.
On Asian stock markets, Japan’s Topix rose 0.7%. Markets in Shanghai, Shenzhen, Hong Kong and South Korea were closed for the Mid-Autumn Festival holiday.
Additional reporting by Hudson Lockett in Hong Kong