Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
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The euro fell on Thursday as investors took profits from a brief surge in the currency after European Central Bank President Christine Lagarde said more interest rate hikes are needed to tame inflation.
The dollar was also boosted by worsening risk appetite as stocks fell. The ECB raised interest rates for the fourth time in a row, although by less than at its last two meetings, pledged further hikes and laid out plans to drain cash from the financial system as part of its fight against runaway inflation.
Lagarde said that upside inflation risks remain, which necessitates more tightening. “The outlook for inflation is rather hawkish for the ECB, whereas here in the U.S. the rhetoric is that they are going to keep raising until they win the fight against inflation, but I think traders are becoming more convinced that the Fed is near the end of tightening,” said Edward Moya, senior market analyst at OANDA in New York.
The greenback weakened on Wednesday even after Fed Chair Jerome Powell adopted a hawkish tone on the need for more tightening even as the economy slips toward a possible recession.
"Lagarde was more hawkish than Powell yesterday," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
Thursday's moves in the euro/dollar were likely "buy the rumor, sell the fact" around the ECB meeting, with the dollar also benefiting from the risk-off sentiment "that was prevailing before the ECB meeting," Chandler said.
The euro EUR=EBS reached $1.0737, the highest since June 9, before falling back to $1.0643, down 0.36% on the day. The dollar index against a basket of currencies =USD was up 0.75% on the day at 104.42.
The greenback briefly pared gains after data on Thursday showed that U.S. retail sales fell more than expected in November, while the labor market remains tight, with the number of Americans filing for unemployment benefits declining last week.
A separate report showed that manufacturing activity in the U.S. mid-Atlantic region contracted for a fourth straight month in December, but factory operators reported a brighter outlook and said inflation pressures were easing notably.
Sterling was lower on the day after the Bank of England raised its key interest rate to 3.5% from 3% and indicated that more hikes were likely.
The pound GBP=D3 was last down 1.75% at $1.2208. The Norwegian krone was lower on the day after Norway's central bank raised its benchmark interest rate by 25 basis points to a 13-year high of 2.75% on Thursday, as expected by economists, and said it will "most likely" hike again in the first quarter of 2023 as inflation remains above its target.
The dollar gained 1.22% against the Norwegian currency NOK=D3 to 9.8460. The Swiss franc CHF=EBS was also lower on the day after Swiss National Bank Chairman Thomas Jordan said it was too early to "sound the all-clear" on high inflation after the central bank hiked interest rates again on Thursday and hinted further increases were still possible.
The SNB raised its policy interest rate by 50 basis points to 1% - the central bank's third hike this year as it stepped up its campaign to dampen the rise in prices.
======================================================== Currency bid prices at 11:15AM (1615 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 104.4200 103.6600 +0.75% 9.154% +104.5400 +103.5300 Euro/Dollar EUR=EBS $1.0643 $1.0683 -0.36% -6.36% +$1.0737 +$1.0605 Dollar/Yen JPY=EBS 137.7150 135.4800 +1.66% +19.64% +137.7400 +135.2400 Euro/Yen EURJPY= 146.58 144.68 +1.31% +12.48% +146.7200 +144.3100 Dollar/Swiss CHF=EBS 0.9290 0.9244 +0.47% +1.82% +0.9303 +0.9232 Sterling/Dollar GBP=D3 $1.2208 $1.2428 -1.75% -9.72% +$1.2426 +$1.2210 Dollar/Canadian CAD=D3 1.3632 1.3543 +0.66% +7.82% +1.3650 +1.3541 Aussie/Dollar AUD=D3 $0.6707 $0.6864 -2.27% -7.72% +$0.6870 +$0.6708 Euro/Swiss EURCHF= 0.9886 0.9874 +0.12% -4.66% +0.9916 +0.9840 Euro/Sterling EURGBP= 0.8715 0.8594 +1.41% +3.75% +0.8723 +0.8592 NZ NZD=D3 $0.6349 $0.6460 -1.70% -7.23% +$0.6463 +$0.6350 Dollar/DollarDollar/Norway NOK=D3 9.8460 9.7280 +1.22% +11.78% +9.8690 +9.7465 Euro/Norway EURNOK= 10.4842 10.3710 +1.09% +4.71% +10.5011 +10.3783 Dollar/Sweden SEK= 10.3222 10.1531 +1.22% +14.46% +10.3364 +10.1599 Euro/Sweden EURSEK= 10.9843 10.8520 +1.22% +7.33% +10.9893 +10.8532
