The euro fell in the European market on Tuesday against a basket of global currencies, resuming its losses that had paused temporarily on Monday against the US dollar, moving down towards its lowest level in two weeks, amid a rise in the US currency supported by rising US Treasury bond yields.
Following media reports, the likelihood of a European interest rate hike in September, the second this year, has increased. To reassess those expectations, investors are awaiting the release of key European inflation data for August later today.
Price overview
Euro exchange rate today
The euro fell 0.15% against the dollar to $1.1600, from today's opening price of $1.1617, and hit a high of $1.1624.
The euro ended Monday's trading session up 0.35% against the dollar, after earlier hitting a two-week low of $1.1575.
Over the course of August, the euro rose by 0.77% against the dollar, marking its second consecutive monthly gain.
US dollar
The dollar index rose 0.15% on Tuesday, resuming gains that had paused in the previous session and approaching its highest level in two weeks, reflecting the renewed rise of the US currency against a basket of major and minor currencies.
The yield on 10-year US Treasury bonds jumped more than 0.6% on Tuesday, extending its gains for the fifth consecutive session and hitting a 20-month high of 4.784%, providing further support for the US dollar exchange rate.
These US developments come after the hardline stance of Federal Reserve Chairman Kevin Warsh at Jackson Hole, which has increased the likelihood of an interest rate hike later this month.
In order to reprice those possibilities, investors are looking forward, starting today, to the release of an important series of data on the US labor market, especially the monthly jobs report scheduled for release on Friday.
European interest rate
Reuters reported last week that the European Central Bank is preparing to raise interest rates at its next meeting in September to contain the fallout from the Iran war, but does not want to signal further monetary tightening thereafter.
Following the above report, the money market pricing of the likelihood of the European Central Bank raising interest rates by 25 basis points in September rose from 50% to 75%.
Inflation in Europe
In order to reprice the likelihood of another European interest rate hike this year, investors are awaiting the release later today of key European inflation data for August, which will reveal the extent to which inflationary pressures have weighed on monetary policymakers at the European Central Bank.
The annual consumer price index for Europe will be released at 09:00 GMT, with market expectations pointing to a rise of 3.3% in August, compared to a rise of 2.9% in July, while the core index is expected to rise by 2.5%, the same rate recorded in the previous reading.
Euro performance forecast
Here at FX News Today, we expect that if inflation data comes in hotter than the markets anticipate, the likelihood of a European interest rate hike in September will increase, which will lead to a recovery in the euro's exchange rate against a basket of global currencies.
