The euro rose against the dollar, snapping two days of losses, after
data showed inflation in the region accelerated to the fastest pace in
16 years.
The euro also advanced versus the British pound on speculation rising
consumer prices will increase pressure on the European Central Bank to
raise interest rates a second time this year.
The pound dropped after a report showed U.K. consumer confidence slumped to a record low.
``Along
with some reasonably hawkish rhetoric from ECB policy makers, we're
going to see inflation moving further to the upside,'' said Jeremy
Stretch, a senior strategist in London at Rabobank International, the
third-largest Dutch bank. ``That might just lead the market to think
that even with the downturn in economic data, the ECB might turn toward
tighter monetary policy. That's providing a little support for the
euro.''
The euro zone's consumer price index rose 4.1 percent in July, the
biggest increase since April 1992, according to the European Union
statistics office in Luxembourg.
``ECB officials remain hawkish even though the European economy is
slowing,'' said Satoru Ogasawara, an economist at Credit Suisse Group
in Tokyo. ``Provided economic figures continue to be not so bad, strong
inflation figures will reignite expectations of a rate hike by the
ECB.''
The euro has still fallen 0.9 percent versus the dollar this month amid
speculation the Frankfurt-based ECB will hold off from raising interest
rates as the risks from slowing economic growth outweigh those from
accelerating inflation.
The U.S. dollar strengthened yesterday after ADP Employer Services
reported that companies added 9,000 jobs in July after cutting a
revised 77,000 positions in June. The report is a leading indicator of
tomorrow's Labor Department employment data. Non-farm payrolls fell
75,000 this month following a drop of 62,000 in June, according to
economists surveyed.
The U.S. payroll report, which includes government hiring, has shown a
reduction in jobs each month this year, while ADP has recorded only two
declines.
The Federal Reserve yesterday extended an emergency-lending program for
Wall Street firms through January after policy makers judged markets
are still too weak to operate without a backstop from the central bank.
``It suggests the market is still fragile and we're not out of the
woods yet,'' said Benedikt Germanier, a currency strategist at UBS AG
in Stamford, Connecticut. ``That means the Fed won't raise rates any
time soon. I'm not buying the dollar.''
U.S. gross domestic product increased at an annual 2.3 percent rate in
the second quarter after 1 percent growth in the first three months of
the year, according to survey of economists before the
Commerce Department releases the report at 8:30 a.m. in Washington.
EUR/USD opened in early Europe around $1.5570. Offers $1.5640, $1.5650/55, $1.5670, bids $1.5605/00, $1.5580/70
GBP/USD traded within $1.9780-$1.9830 range.
USD/JPY opened in early Europe around Y108.05. Offers Y108.30/35, stops above offers Y108.40/60, stops above.
At 12:30 GMT focus will be on GDP (Q2) advance Y/Y and PCE price index (Q2) advance. At 13:45 GMT is due Chicago PMI (July).