Alden Bentley, Alan John and Ray V
NEW YORK/LONDON/SINGAPORE (Reuters) – The euro traded in a tight range on Thursday after the European Central Bank cut rates from record highs after months of waiting.
The euro rose 0.04% to $1.0872, not far from the two-and-a-half month high of $1.0916 hit earlier in the week. Against the yen, the Japanese currency rose 0.10% to 169.895 yen.
The index, which measures the dollar against a basket of currencies including the yen and euro, added 0.07% to 104.31, also sideways, with little reaction to a report showing jobless claims last year. week exceeded expectations and amounted to 229,000.
Inflation in the 20 countries that use the euro has fallen from more than 10% at the end of 2022 to just above the ECB’s 2% target in recent months, thanks largely to lower fuel prices and normalization of supplies after some post-pandemic challenges.
But that progress has stalled recently, and what just a few weeks ago looked like the start of a major ECB easing cycle now appears more uncertain due to signs that eurozone inflation may prove persistent, as it has in the United States.
Now that the ECB’s rate cut has been reversed, markets are focusing on Friday’s US jobs data.
“What the ECB said and did was so expected that if you adjusted for a 25 basis point cut right now, the swap market wouldn’t change much,” said Mark Chandler, chief market strategist at Bannockburn. Global Forex in New York.
Chandler was referring to the difference in interest rates between the eurozone and the United States, which determines forward prices for currency pairs and affects spot prices. He said it is, however, not unusual for the dollar to weaken ahead of the monthly jobs report and then rise again.
Until then, Thursday’s talk will largely focus on central banks. The Canadian dollar is strengthening slightly after the Bank of Canada’s expected rate cut on Wednesday. The currency was last traded at C1.3686 per dollar.
Ahead of the US jobs report, investors are aware of the implications for the Federal Reserve of several US data this week showing a slowdown in employment growth, albeit at the same time as activity in the services sector picked up.
The Federal Open Market Committee will meet next week, but no rate cuts are expected yet. Markets are now pricing in nearly 50 basis points of Fed rate cuts this year, with the first likely to come in September.
The euro also strengthened against the pound, up 0.23% to 85.18 pence, although that was closer to the bottom of its recent range.
Against the dollar, the pound sterling fell slightly to $1.2779.
THE YEN IS RISING
The yen firmed at 155.96 per dollar as investors digested remarks Thursday by Bank of Japan Governor Kazuo Ueda that it would be prudent to reduce the central bank’s bond purchases as it moves toward an exit from massive monetary stimulus.
His comments come ahead of the Bank of Japan’s two-day monetary policy meeting next week.
“It was almost an impulsive play on the part of Japan’s central bank – that is, when added to the flow of positive news on the yen, when the funding currencies – the yen and the Swiss franc – had already been covered and bought back, the yen rally gained further momentum as a result.” said Chris Weston, director of research at Pepperstone.
The Japanese currency enjoyed a brief rally earlier in the week as investors eased positions in yen-financed carry trades following a landslide election victory for Mexico’s ruling party that raised concerns over a controversial constitutional reform.
This led to a reduction in long peso/short yen positions, which were favorites among carry trades.
In a carry trade, an investor takes out a loan in the currency of a country with low interest rates and invests the proceeds in a higher-yielding currency.
The peso was marginally lower against the yen after rising 2.6% in the previous session. It fell about 6% against the Japanese currency earlier in the week following the Mexican election results.
In cryptocurrencies, Bitcoin fell 0.38% to $71,024.00. fell 0.8% to $3,832.9.