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Dollar sags below 20-year peak as euro lifted by ECB bets

The tables turned for the two currencies as traders began ramping up bets for a super-sized 75 basis-point rate hike by the European Central Bank, while paring the odds for one by the U.S. Federal Reserve.

August 30, 2022 / 07:28 AM IST
(Representative image)

(Representative image)

The dollar languished on Tuesday after being beaten back from a two-decade high versus major peers by a reinvigorated euro.

The tables turned for the two currencies as traders began ramping up bets for a super-sized 75 basis-point rate hike by the European Central Bank, while paring the odds for one by the U.S. Federal Reserve.

The dollar index - which measures the greenback against a basket of six currencies, with the euro the most heavily weighted - stood at 108.65 at the start of the Asian day, after dropping back from 109.48 overnight, a level not seen since September 2002.

The euro edged 0.08% higher to $1.00045, extending Monday's 0.32% rally - which was its biggest in almost three weeks - after failing to keep its head above parity for the past week.

"The euro has found some stability near parity with help from reports that a 75bp hike could be on the cards at the September ECB meeting," said Sean Callow, a currency strategist at Westpac in Sydney.

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"But the euro's yields remain unappetising and the deepening gas crisis in Europe means that more aggressive ECB hikes would only deepen recession. We expect EUR/USD to print fresh 20-year lows in coming days, with 0.98 the next obvious target."

Traders see better than 50% odds for a 75 bps move by the ECB on Sept. 8 after a parade of ECB speakers at the Fed's annual symposium in Jackson Hole backed the case for a big hike.

By comparison, bets for a 75 bps increase by the Fed on Sept. 21, while higher at 70%, have receded from as much as 75% on Monday.

Monthly U.S. jobs figures due on Friday will be closely watched for further clues on the rates outlook.

The euro was also helped by a retreat in European gas prices after German economy minister Robert Habbeck said the country was filling gas storage facilities faster than expected.

The dollar slid 0.17% to 138.505 yen, after rising to 139 overnight for the first time since mid-July.

Sterling added 0.1% to $1.17175, recovering from an almost 2-1/2-year low of $1.16495 reached on Monday.

The Aussie edged 0.04% higher to $0.69125, bouncing from $0.6481 in the previous session, a six-week low.
Reuters
first published: Aug 30, 2022 07:28 am
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