Sydney, July 24 (BNA): The euro fell on Monday after activity data in major economies came in softer than expected, giving markets a jolt at the start of a busy week of central bank meetings during which investors expect rate hikes in Europe and the United States.
According to Reuters, the European common currency fell 0.43% to $1.1076, after a quiet Asian session after purchasing managers’ index data showed business activity contracted in France and Germany.
Simon Harvey, head of FX analysis at Monex Europe, said slower growth in the eurozone would reduce the likelihood of “the inward portfolio flows needed to return the euro to its pre-conflict ranges of $1.12 to $1.20.”
There’s a lot for investors to watch this week – the Federal Reserve wraps up its meeting on Wednesday, followed by the European Central Bank (ECB) the next day and the Bank of Japan on Friday, as well as earnings from several heavyweights.
Investors are expecting both the European Central Bank and the Federal Reserve to raise interest rates by 25 basis points, and in either case focus on the signals they are sending about the September meetings. Inflation easing may allow the Fed room to hint at a pause.
“The past week has left markets believing in a soft landing scenario for US markets as (the Federal Reserve) ends its rally…and then sees a steady decline in CPI without a recession,” said Bob Savage, head of market strategy at BNY Mellon.
Traders say the Bank of Japan is the most likely of the three central banks to trigger a market-moving surprise, with yield curve control adjustment as a possibility.
The yen was more stable in the latest trading today, with the dollar declining 0.28% to 141.45 yen and the euro 0.6% to 156.7 yen.
The Japanese currency fell last Friday to 141.92 against the dollar, and it also fell at the intersections, after a Reuters report that the Bank of Japan was inclined towards maintaining the yield curve control policy unchanged, despite the high volatility measures as the meeting approached.
Analysts at the Commonwealth Bank of Australia wrote: “If the BoJ adjusts its YCC programme, financial markets will likely take it as the start of a tightening cycle regardless of the BoJ’s logic. Under such a scenario, we consider that USD/JPY and EUR/JPY could lose around 2-4 yen per day,” CBA analysts wrote.
The pound settled at $1.2849, and the Swiss franc fell to 0.8677 per dollar, all of which made the dollar index rise by 0.22%, at 101.3.
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