Euro jumps on inflation while dollar braces for jobs

The euro stood at a 15-year high on the yen on Thursday on signs of sticky inflation in Europe, while the dollar was squeezed ahead of consumption, inflation and jobs data that could add to evidence of a softening economy.

The dollar index , while still up more than 1 per cent for August. Image source: Reuters

The euro stood at a 15-year high on the yen on Thursday on signs of sticky inflation in Europe, while the dollar was squeezed ahead of consumption, inflation and jobs data that could add to evidence of a softening economy.

Annual inflation in Germany and Spain barely slowed in August, against expectations, data on Wednesday showed.

Traders figured it increased chances of a rate hike in Europe next month to about 50-50, and bought the euro which rose 0.4 per cent to $1.0923.

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It was steady in early Asia trade and is now up three sessions in a row on the dollar and five straight sessions on the yen , where it hit a 15-year top at 159.76 yen.

Sterling also rose along with the euro, and was last holding gains at $1.2713.

China PMI data is expected to come in soft later in the day, keeping the yuan little changed in early offshore trade.

Europe-wide inflation data is also due later on Thursday, as is US personal consumption data and core PCE - which is the Federal Reserve's favoured inflation gauge.

US payrolls data is due on Friday, and the dollar has been under pressure as second-tier figures this week such as job openings and private payrolls have pointed to softness.

Overnight the Commerce Department revised down second-quarter growth to 2.1 per cent from an estimate of 2.4 per cent.

The dollar index , while still up more than 1 per cent for August, has fallen 1 per cent for the week so far as traders reckon US interest rates may have stopped rising - even if they stay high.

"Market expectations that Fed rates have plateaued are continuing to creep higher," said analysts at ANZ Bank.

Two-year Treasury yields are down about 17 basis points (bps) to 4.888 per cent this week and Fed funds futures imply about a 40 per cent chance of a hike by year-end, compared with about 55 per cent at the start of the week.

Ten-year yields are down 12 bps to 4.1139 per cent.

The Antipodean currencies made a round trip on the dollar overnight, unable to hold gains ahead of likely soft Chinese data, and as hikes might also be done in Australia and New Zealand.

After briefly poking above $0.60, the New Zealand dollar traded at $0.5953 on Thursday, while the Aussie was firm at $0.6418. Both have been hit hard by fears of a deepening malaise in China's economy, and are set for their worst monthly drops since February, with falls larger than 3.5 per cent.

The yen has been another weak performer this month, dropping 2.6 per cent on the dollar as investors figure interest rates are likely to stay low in Japan and high in the United States.

It has been steadying with traders wary of the risk of official intervention, and was last at 146.07 per dollar.

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