The euro nursed losses on Wednesday after its sharpest drop in two weeks as a cut in Russian gas supply sent energy prices soaring, while the Australian dollar dipped with relief that inflation was not as hot as some investors had bet.
But most moves were modest as traders awaited a Federal Reserve policy announcement at 1800 GMT. The euro rose 0.3% to $1.0145 in Asia, not enough to recoup much of Tuesday’s 1% slide as Europe’s growth remains dependent on what are diminishing Russian gas flows.
The yen was steady at 137.00 per dollar. Sterling crept 0.2% higher to $1.2053. The kiwi was flat at $0.6230 and the Australian dollar fell 0.2% to $0.6923. Australia’s year-on-year core inflation hit 4.9% in June, miles above the central bank’s target for 2-3% but not as bad as some investors had feared and rate hike bets were pulled back.
The market has taken out the small chance of a 75 basis point increase … I think that is the reason the Aussie has sold off a little, out of that relief, said Ray Attrill, head of FX strategy at National Australia Bank, adding that investors were positioned for an upside surprise.
Markets are now pricing an 85.7% chance of a 50 bps rate hike by the Reserve Bank of Australia next week, with 14.3% expecting a more muted 25 bps increase. For the Fed, a 75 bps is priced in, with a 13% chance of a supersized 100 bps raise.
The focus will also be on the Fed’s news conference at 1830 GMT for any hint on whether policymakers’ resolve to hike further is waning as growth slows. It’s more of a wait-and-see rather than the expectation of a large surprise, said Galvin Chia, emerging markets strategist at NatWest Markets.
He expects the U.S. dollar to remain supported by haven flows over the longer term, amid a darkening global outlook.
Overnight data showed U.S. consumer confidence falling to a nearly 1-1/2 year low and new home sales slumping, while Walmart shares slid after the retailer issued a profit warning. Last week European manufacturing data was soft.
