By Kevin Buckland and Alun John
TOKYO/LONDON (Reuters) – The euro held near its highest in more than a year against the dollar on Thursday after strong euro zone business activity data and ahead of euro zone wage figures that will shape the European Central Bank’s interest rate path.
The euro was steady at $1.1146, just below Wednesday’s $1.11735, its highest since July 2023.
Gold has been supported in recent weeks by a weaker dollar, as dovish Federal Reserve policy and fresh signs of weakness in the U.S. labor market support the case for interest rate cuts.
European developments will be the focus for the euro on Thursday. The single currency fell after a preliminary survey showed German business activity contracted for a second straight month in August and by more than expected, but rebounded after euro zone data showed surprising strength.
The next data is the single currency area wage growth data due at 0900 GMT which will guide the ECB’s future policy expectations and hence the direction of the euro.
“A significant slowdown in euro area negotiated wage growth in Q2 2024 would support a rate cut in September,” said Andrzej Szczepaniak, chief European economist at Nomura.
He said recent German and French data suggested wage growth would slow to below 4% from 4.7% in the first quarter.
The pound was steady at $1.3095, after hitting $1.31195, also a 13-month high, in the previous session, while the dollar rose 0.15% against the yen at 145.46.
This left the sterling index, which measures the currency against the euro, pound, yen and three other currencies, up 0.1% at 101.22.
The index fell to 100.92 on Wednesday for the first time this year, falling as markets grew more confident that the Federal Reserve is on track to cut interest rates starting in September.
Traders are now pricing in a 38% chance of a 50 basis point rate cut at the Fed’s Sept. 17-18 meeting, up from 33% the day before, and are fully pricing in a 25 basis point cut, according to CME Group’s FedWatch tool.
The latest guidance on the Fed’s path came from minutes of its July 30-31 meeting released Wednesday, which showed officials were leaning strongly toward cutting interest rates at the September meeting and that many were prepared to lower borrowing costs in July.
In the same vein, U.S. employers added far fewer jobs than originally reported during the year through March, according to a report released by the Labor Department on the same day.
Weekly U.S. jobless claims data is due later Thursday, as well as a highly anticipated speech by Federal Reserve Chairman Jerome Powell at the central bank’s annual Jackson Hole symposium on Friday.
Other central bankers, including Bank of England Governor Andrew Bailey and European Central Bank Chief Economist Philip Lane, are also scheduled to speak at Jackson Hole, while Bank of Japan Governor Kazuo Ueda will testify on Friday at a special session of parliament that will examine the BOJ’s decision to unexpectedly raise interest rates late last month.
The hawkish stance by the central bank chief helped prompt a rapid unwinding of weaker yen positions and a sharp sell-off in Japanese stocks. A few days later, influential deputy governor Shinichi Uchida restored some calm to markets by saying policy would not be too tight in volatile periods.
“Having largely recovered from losses, Ueda could comfortably maintain his stance that further rate hikes may be necessary if expectations materialize, while emphasizing that financial stability will factor into policy considerations as well,” DBS analysts wrote in a note.
Elsewhere, the Swiss franc was slightly higher, with the dollar down 0.16% at 0.8504 francs and the Australian dollar steady at 0.6745 US dollars.