Written by Alden Bentley, Alun John and Ray Wee
NEW YORK/LONDON/SINGAPORE (Reuters) – The euro fluctuated in a narrow range on Thursday after the European Central Bank cut interest rates from record high levels after months of anticipation, rising and then falling briefly with the results of the European Central Bank meeting expected to be good.
The euro rose 0.04 percent to $1.0872, which is not far from the highest level in two and a half months of $1.0916 recorded earlier in the week. Against the yen, the Japanese currency rose by 0.10% to 169.895 yen.
The index, which measures the greenback against a basket of currencies including the yen and euro, rose 0.07% to 104.31, also sideways with little reaction to a report showing jobless claims last week were higher than expected at 229,000.
Inflation in the 20 countries that use the euro has fallen from more than 10% in late 2022 to just above the European Central Bank's 2% target in recent months, largely due to lower fuel costs and the normalization of supply after some post-pandemic hitches. .
But this progress has stalled recently and what looked like the start of a major ECB easing cycle just a few weeks ago now looks more uncertain due to signs that inflation in the euro zone may be challenging, as has been the case in the United States.
Now that the European Central Bank's decision to cut interest rates has come to an end, markets have turned their attention squarely to Friday's US jobs data.
“What the ECB said and did was predictably, is that when you make the adjustments to the 25 basis point cuts at the moment, the swap market hasn't changed much,” said Mark Chandler, chief market strategist at Bannockburn. Forex global new york.
Chandler was referring to the interest rate differentials between the Eurozone and the United States that determine the forward prices of foreign currency pairs and affect the spot price. Regardless, he said, it is not unusual for the dollar to weaken ahead of the release of monthly employment data, and then to rise again.
Until then, the talk on Thursday is mainly about central banks. The Canadian dollar rose slightly in the wake of an expected interest rate cut from the Bank of Canada on Wednesday. In its latest transactions, the currency recorded 1.3686 cents to the dollar.
Ahead of the US jobs report, investors are grappling with the implications for the Federal Reserve from several US data this week showing moderation in employment growth, albeit alongside a rebound in service sector activity.
The Federal Open Market Committee meets next week but is not expected to cut interest rates yet. Markets are now pricing in roughly 50 basis points of Fed rate cuts this year, with the first likely to come in September.
The euro also rose 0.23 percent against the pound to 85.18 pence, although it was heading towards the lower end of its recent range.
Against the dollar, the pound fell slightly to $1.2779.
Yen rises
The yen rose at 155.96 against the dollar, as investors digested comments by Bank of Japan Governor Kazuo Ueda on Thursday that it would be appropriate to reduce the central bank's bond buying as it moves toward exiting massive monetary stimulus.
His comments come ahead of the Bank of Japan's two-day monetary policy meeting next week.
“This was almost an impetus from the BoJ – that is, adding to the flow of positive news for the Japanese yen when the financing currencies – the Japanese yen and the Swiss franc – were already covered and bought back, with the result that the Japanese yen's rise was gaining more strength.” said Chris Weston, Head of Research at Pepperstone.
The Japanese currency saw a brief rally earlier in the week, as investors unwinded positions in yen-funded carry trades, in the wake of Mexico's ruling party's strong election victory that raised concerns about a disputed constitutional reform.
This led to pressure on long peso/short yen positions, which were favored among carry trades.
In a carry trade, an investor borrows in a country's currency with low interest rates and invests the proceeds in a higher-yielding currency.
The peso fell slightly against the yen after rising 2.6% in the previous session. It had fallen nearly 6% against the Japanese currency at the beginning of the week, in the wake of the Mexican election results.
In cryptocurrencies, Bitcoin fell by 0.38% to $71,024.00. It fell 0.8% to $3,832.9.