Euro finds footing on hawkish policy remarks, lower energy prices

The euro held onto a 15-year high against the yen and inched higher on the dollar on Thursday, following hawkish remarks from European policymakers and the prospect of falling energy prices.

Central bankers take centre stage again later in the day, with scheduled speeches from Federal Reserve chair Jerome Powell and Bank of England chief economist Huw Pill.

At $1.0710, the common currency was firm in Asia trade after the European Central Bank’s chief economist said on Wednesday he had not seen enough progress in taming inflation.

The euro hovered near its highest since 2008 at 161.73 yen, having broken out since the Bank of Japan left short-term rates on hold last week as investors see selling yen against the euro as safer than risking intervention in dollar/yen. The euro is up 0.6 per cent this week to 87.14 pence.

Ireland’s central bank chief Gabriel Makhlouf said on Wednesday further interest rate hikes should not be excluded, something markets were not expecting at all, while Bundesbank President Joachim Nagel said the “last mile” to the inflation target may be the toughest.

“While the market has been focusing on the prospects of rate cuts from (G10 central banks) next year, many of the respective central bankers have been pushing back against this speculation,” said Rabobank senior strategist Jane Foley.

“As long as inflation remains above target, policy makers are likely to want to keep alive the risk of further tightening particularly since a significant drop in market rates could worsen inflationary risks.”

The unloved yen failed to get much of a boost from a fall in US Treasury yields, with the 10-year rate at its lowest since September, while the yen weakened past 151 per dollar. It last traded at 150.91.

Elsewhere, falling oil prices were welcome relief in Europe, but held back commodity-linked currencies such as the Australian, New Zealand and Canadian dollars.

The Australian dollar recouped some of its overnight losses as prices for Australia’s biggest export, iron ore, hit 16-month peaks on expectations of recovering demand from China. It was last up 0.2 per cent to $0.6460.

The New Zealand dollar rose 0.3 per cent to $0.5927.

In China, Reuters reported authorities had asked Ping An Insurance Group to take a majority stake in stricken developer Country Garden (2007.HK). Ping An denied the report, but traders were hopeful it signalled support for the sector.

China’s yuan slipped in anticipation of further rate cuts after data showed Chinese consumer prices fell in October.

China’s consumer prices fell in October, data showed on Thursday, stoking expectations for lower interest rates.

“There are some growing market expectations for further rate cuts by the Chinese central bank given soft inflation prints and still narrow economic recovery,” said Michael Wan, currency analyst at MUFG in Singapore.

In the Middle East, Israeli forces battled Hamas militants at close range in Gaza City, yet heavy dollar selling from the Bank of Israel has helped drive the shekel back to pre-war levels of 3.83 to the dollar.