Dollar squeezed as inflation drives up euro

SINGAPORE  – The dollar nursed losses on Thursday as optimism about China’s reopening was supported by encouraging data and underpinned Asian currencies, while sticky inflation had the euro eying its best week in a month and a half.

The dollar lost 0.9 percent on the euro overnight, and since it moved lower despite U.S. yields rising some are speculating it might have peaked as February’s rally runs out of steam.

The euro is up 1.2 percent on the week and last bought $1.0667 with hotter-than-expected German inflation in February adding to pressure on the European Central Bank to raise rates following unexpectedly strong readings in France and Spain.

“The turn in the dollar came right on schedule as month end flows fizzled and the dominant driver of euro/dollar, rate differentials, reasserted itself,” said Brent Donnelly, president of analytics firm Spectra Markets.

Euro zone inflation data is due later in the day.

The yen hardly budged but the dollar made broad falls on Asian currencies as it retreats from recent highs.

China’s better-than-expected manufacturing activity set the yuan on its biggest one-day jump of the year so far on Wednesday, surging about 0.9 percent.

On Thursday the yen was a tad stronger at 136.04 to the dollar in early trade while the Australian dollar held Wednesday gains made despite softer-than-expected growth data and some hints that inflation may have peaked.

“Yesterday’s positive surprise in the PMIs for China in February are a positive for mining commodity prices and the currencies of countries that export them,” said Commonwealth Bank of Australia’s head of international economics, Joe Capurso.

“We consider the Australian dollar can increase materially in the weeks after China’s Two Sessions meetings,” he said.

“The yuan and commodity currencies such as the Australian and New Zealand dollars can rise materially if the meeting sends a pro‑growth signal, as we expect.”

China’s annual parliament meeting opens on Sunday and will implement the biggest government reshuffle in a decade, confirming President Xi Jinping’s new economic team.

South Korea’s won jumped more than 1% on the dollar, catching up Wednesday gains after markets had been closed for a holiday. The Aussie was last at $0.6759 and the kiwi at $0.6255, while the yuan traded at 6.8731 per dollar in offshore trade.

Elsewhere sterling was held back by remarks from Bank of England Governor Andrew Bailey, who said “nothing is decided” on future rate hikes which had traders trimming back bets on higher rates. Sterling was steady at $1.2027.

Bitcoin has made little headway despite the dollar’s dip and was last at $23,631. Trouble at crypto bank Silvergate has weighed on the mood and the bank’s stock dropped 28% on Wednesday after it warned it was delaying its annual report and evaluating its ability to operate.

Besides European inflation, euro zone employment and central bank minutes are due later in the day, as is U.S. jobless claims data.