NEW YORK: The dollar slipped to a 1-week low against the euro on Thursday as German inflation data helped lift the common currency and as concerns over the banking sector receded.
Inflation eased significantly in Germany in March on the back of lower energy prices but was above forecasts, adding pressure on the European Central Bank to further tighten its monetary policy.
Separately, data showed that Spain’s consumer prices rose 3.3% year-on-year in March, the slowest pace since the 12-month period through August 2021 and less than expected by analysts.
The European Central Bank, which has made it clear future rate hikes will depend on economic data, has increased its key deposit rate by 350 basis points to 3% since July as it seeks to tame surging inflation.
“There is a divergence developing between the ECB and the Fed that is going to weigh on the dollar,” Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto, said.
“(European inflation data) suggests there is more work for the ECB to do and that could close the policy rate gap between the ECB and the Fed going forward,” he said.
Last week, the Federal Reserve’s Federal Open Market Committee raised interest rates by 25 basis points, as expected, but took a cautious stance on the outlook because of the banking sector turmoil.
“We are reasonably confident that the Fed is going to, most likely, hike one more time and then remain on hold for the rest of this year, whereas we can’t say the same for the ECB at this time,” Rai said.
The euro was 0.67% higher at 1.0916, the highest since March 23. For the year, the euro was up nearly 2% after having slumped 5.7% in 2022.
“The euro was hit by a perfect storm of shocks most of last year, but things have turned considerably more positive now,” strategists at BofA Global Research said in a note.violations.
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