(Reuters) – The euro fell to its lowest level since mid-June on Friday, knocked down by growing expectations that the European Central Bank could soon pause rate hikes while the dollar was broadly robust ahead of a speech by Federal Reserve Chair Jerome Powell.
ECB policymakers are increasingly worried about weakening growth prospects and, while the debate is still open, momentum for a pause in its rate hikes is building, Reuters reported, citing eight sources with direct knowledge of the discussion.
The euro fell to a fresh low following the release of that report, hitting its lowest since mid-June at around $1.0766. It was last down 0.3% on the day.
The dollar index, which measures the U.S. currency against six others, rose to 104.25, the highest since June 7. The index is up more than 2% in August and set to snap its two-month losing streak.
Powell speaks at the Jackson Hole Economic Policy Symposium at 1405 GMT, while ECB chief Christine Lagarde speaks at the same gathering later in the day.
“Powell will maintain that the Fed will keep a hike in play, while markets are less convinced about further ECB tightening,” said Jeremy Stretch, head of G10 FX strategy at CIBC in London.
“It still feels like the path of least resilience is for a stronger dollar.”
Both the euro and sterling have been hit this week by weak business activity data that has prompted investors to scale back bets on further rate hikes in the euro area and Britain.
Sterling touched its lowest level since June at around $1.2560 before trimming losses to around $1.2591 to trade just a touch softer on the day.
It is down roughly 1% this week and set for its biggest weekly drop in five weeks.
In contrast, the dollar index is on course for its sixth straight week of gains, aided by signs of resilience in the U.S. economy that has bolstered the case for rates staying higher for longer.
Data overnight also showed that the number of Americans filing new claims for unemployment benefits fell last week, as labour market conditions remained tight.
“Whilst it appears the Fed may be done with hiking; how long do they hold rates steady at these levels? That’s the million-dollar question,” said Tom Hopkins, portfolio manager at BRI Wealth Management.
“The market expects the central bank to begin cutting rates in May next year, however I’d be skeptical of this at this juncture as the economic picture may not justify monetary easing.”
Futures are pricing the Fed’s overnight lending rate to stay above 5% through June 2024, with about 100 basis points of rate cuts in the second half. The market in early August was betting on about 130 basis points of cuts next year.
The yen weakened 0.16% to 146 per dollar as the Asian currency straddled the level at which Japanese authorities intervened last year, keeping traders on their toes looking for signs of similar moves this time.
The Australian dollar was little changed around $0.642, while the New Zealand dollar fell 0.3% to $0.590
