Euro nears one-week high as markets await European Central Bank’s rate decision

TOKYO: The euro moved towards a one-week high on Thursday ahead of the European Central Bank’s policy decision, with markets expecting rates to remain unchanged while officials leave open the possibility of another increase in September.

The euro was last up 0.17% at $1.1429, while the dollar index, which tracks the US currency against a basket including the euro and Japanese yen, slipped 0.13% to 100.98.

The ECB raised rates in June and indicated that further tightening could follow. However, recent data on inflation, wages, economic activity and price expectations has reduced the likelihood of another immediate increase.

Higher oil prices have complicated the outlook. Crude rose more than 1.5% in Asian trading to its highest level in over six weeks after the United States launched another round of strikes on Iran and the Iranian-aligned Houthis claimed attacks on oil tankers in the Red Sea.

The escalation has raised concerns that an energy shock could feed into broader inflation and force the ECB to maintain a more hawkish stance.

“We have flagged a small risk that the ECB decides to deliver an early hike,” said Samara Hammoud, international economist and currency strategist at Commonwealth Bank of Australia. “A ‘hawkish hold’ is another upside risk to EUR/USD today.”

Elsewhere, the Australian dollar gained 0.23% to $0.7012, while the New Zealand dollar traded at $0.5818. Sterling rose nearly 0.1% to $1.3384.

Bitcoin fell 0.5% to $65,557.35, while ether declined 0.44% to $1,917.65.

The Japanese yen edged 0.04% higher to 163.05 per dollar after weakening to 163.23 on Tuesday, its lowest level since December 1986.

The decline came amid broad dollar strength and expectations that the Bank of Japan would take a gradual approach to further rate increases.

A Reuters poll published on Thursday showed that 86% of economists expected the BOJ to raise rates again this year, possibly as early as October, although 95% forecast no change during the current quarter.

Japan’s finance minister again warned that the government was prepared to take decisive action in the foreign exchange market if necessary. Tokyo intervened to support the yen in April and May after it weakened beyond 160 per dollar.

Nearly 80% of economists surveyed by Reuters said a dollar-yen rate near 160 left the Japanese currency weaker than justified by the country’s economic fundamentals.

Kumiko Ishikawa, senior FX market analyst at Sony Financial Group, said the dollar’s move above 163 had increased concerns about possible intervention, although the absence of stronger warnings from Japanese officials suggested some tolerance for further weakness.

“At the same time, there is also a view that authorities will not necessarily follow the same playbook every time. So the market is left uncertain over when intervention might come,” she said.