Euro resilient ahead of ECB call despite $100 oil drag on economy

Loading exchange rates…

The Euro traded near a two-week high on Thursday ahead of an expected interest rate hike by the European Central Bank, while major currencies broadly held steady despite another surge in oil prices and global bond yields.

 

Oil futures remained firmly above $100 a barrel for a second consecutive day as energy shipments from the Gulf dwindled following the largest wave of attacks on shipping by Iran and the United States since the outbreak of the war.

 

More concerning for households with winter just weeks away, the cost of refined energy products such as heating oil and natural gas has also surged. The renewed inflationary pressure is expected to prompt the European Central Bank to raise eurozone interest rates for a second time since the war began in late February.

 

The fresh inflation fears have pushed global bond yields back towards multi-decade highs, with some markets reaching record levels. However, the spike in yields has done little to boost demand for the Dollar as a traditional safe haven asset, Reuters reports.

 

The Euro, which climbed to a two-week high of $1.1654 on Wednesday, was trading at $1.1639 at the time of writing, up 0.1% on the day.

 

Despite the eurozone’s heavy reliance on imported energy, which has traditionally made the currency particularly vulnerable to oil-price swings, that relationship has weakened as the war has continued. The shift has also limited the flow of safe-haven capital into the Dollar.

 

Markets were becoming increasingly resilient to oil price shocks as the war dragged on, while several broader forces continued to weigh on the Dollar. These included growing demand for debasement trades, tighter monetary policy from central banks around the world and a more interventionist approach from the US Treasury, with all of these pressures steadily filtering through to currency markets in the background.

 

The US Treasury joined forces with the Bank of Japan in late July to support the Yen, selling Euros rather than Dollars as part of the intervention. Earlier this week, Treasury Secretary Scott Bessent said he supported using Washington’s financial leverage as a tool of foreign policy. Meanwhile, the Treasury announced a larger bond buyback operation for Thursday, aimed at helping to contain the rise in long-term Treasury yields.

 

Since the official intervention at the end of July, the Yen has strengthened by more than 6%. On Thursday, it was trading at 153.525 per Dollar, close to a seven-month high, as markets looked ahead to an interest rate increase by the Bank of Japan next week.

 

In addition, US inflation data will also be crucial for the Yen’s outlook. Producer price figures due later on Thursday, followed by consumer price data on Friday, could shape expectations for the Federal Reserve’s next move. A stronger-than-expected inflation reading could increase pressure on the Fed to raise US interest rates at its 15-16 September meeting.

 

Markets are now pricing in roughly a 60% probability that the Federal Reserve will raise interest rates this month, following Friday’s stronger-than-expected nonfarm payrolls report.

Contact Us

deVere FX Queries

6th Floor, ABSA house,
Ebene Cybercity,
Mauritius,

J. Balcikonio str. 9,
LT- 08314, Vilnius,
Lithuania,

media contact

About

deVere Group – Foreign Exchange’s Public Relations Department deals with all areas of the media and external communications including international, national, regional, local, trade, consumer, print, broadcast, social and online. The Department aims to provide a helpful service to journalists, broadcasters and editors, amongst others, and reply to all media enquiries, including urgent enquiries out of hours, within agreed deadlines.

Contact

Our press office does not have access to client details and will not be able to assist with individual client enquiries. Please contact deVere Group – Foreign Exchange’s Head of Public Relations on [email protected] or call +44 2071220925.

Enquiries

deVere FX Queries

6th Floor, ABSA house,
Ebene Cybercity,
Mauritius,
J. Balcikonio str. 9,
LT- 08314, Vilnius,
Lithuania,

media contact

About

deVere Group – Foreign Exchange’s Public Relations Department deals with all areas of the media and external communications including international, national, regional, local, trade, consumer, print, broadcast, social and online. The Department aims to provide a helpful service to journalists, broadcasters and editors, amongst others, and reply to all media enquiries, including urgent enquiries out of hours, within agreed deadlines.

Contact

Our press office does not have access to client details and will not be able to assist with individual client enquiries. Please contact deVere Group – Foreign Exchange’s Head of Public Relations on [email protected] or call +44 2071220925.