Euro jumps to three-week high amid hawkish ECB

TOKYO: The euro jumped to a more than three-week peak versus the dollar yesterday, and the sterling rose to the highest this month as European Central Bank (ECB) officials pushed the case for further aggressive monetary tightening.

The greenback idled not far from a twoweek low against a basket of peers ahead of key US inflation data this week that might give the Federal Reserve (Fed) room to slow the pace of rate hikes at its Sept 21 policy meeting.

ECB policymakers see a rising risk that they will have to raise their key interest rate to 2% or more to curb record inflation in the eurozone, sources told Reuters.

In an interview with German radio over the weekend, Bundesbank president Joachim Nagel said that if the picture for consumer prices doesn’t change, “further clear steps must follow”.

The dollar index, which measures the currency against six major counterparts, was little changed at 108.78, holding close to those levels after falling back from a two-decade peak of 110.79 reached on Wednesday.

It dipped to the lowest since Aug 30 at 108.35 in the previous session.

Investors are wary ahead of the United States consumer price index or CPI report, even as Fed officials continued their hawkish rhetoric on Friday.

That was the final day for such comments before a black-out period leading up to the Federal Open Market Committee’s (FOMC) deliberations.

Fed governor Christopher Waller said he supported “a significant increase at our next meeting,” while St Louis Fed president James Bullard reiterated his call for a hike of 75 basis points.

“Officials have clearly articulated the need for the FOMC to keep raising interest rates until there is compelling evidence that inflation is falling,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a client note.

“Regardless of the outcome of the CPI report, we judge the FOMC has much more work to do,” meaning more upside for the dollar over the short and medium terms, he said.

The dollar, however, strengthened 0.36% to 143.215 against the rate-sensitive yen, heading back toward a 24-year zenith at 144.99 from Wednesday.

That came as the benchmark US 10-year Treasury yield , which the currency pair often tracks closely, hovered around 3.315% in Tokyo trading, not far from last week’s nearly three-month high of 3.365%.

Japanese officials again hinted at intervention over the weekend, with a senior government spokesman saying in a local television interview that the administration must take steps as needed to counter excessive yen declines.

Analysts though doubt intervention would work without the backing of the Fed and other central banks, considering that the Bank of Japan is alone among developed markets in pressing on with stimulus.

“A coordinated effort is needed and right now with major central banks fighting inflation through tighter policy, global official support for the yen seems unlikely,” Rodrigo Catril, a strategist at National Australia Bank, wrote in a note.

“If the Bank of Japan really wants to stop the yen’s decline, then it needs to make changes to its ultra-easy policy,” he added. “The pressure is building.”

Elsewhere, the Australian dollar slipped 0.23% to US$0.6831 (RM3.08), while New Zealand’s kiwi edged 0.07% lower to US$0.6099 (RM2.75).

Bitcoin eased 0.4% to US$21,750 (RM97,947), after briefly pushing up to US$22,350 (RM100,648) for the first time since Aug 19, as the cryptocurrency attempts to find its footing following its bounce from a nearly threemonth low at US$18,540 (RM83,490) last week.