The euro firmed against the dollar on Wednesday, extending the previous day's gains on expectations the European Central Bank will bump up interest rates later this week. The Australian dollar jumped after surprisingly strong retail sales data showed demand in the economy remained robust, despite surging oil and high interest rates.
But activity was subdued in Asian trade as many investors retreated to the sidelines ahead of an ECB policy meeting on Thursday and the ever-important monthly US employment report due the same day. The market is eyeing both events for possible hints about future monetary policy paths in the euro zone and the United States.
The ECB is widely expected to lift interest rates by a quarter percentage point to 4.25 percent this week. "The market is pripeal against the dollar. Federal Reserve Bank of Atlanta President Dennis Lockhart said on Tuesday that the US central bank must "react decisively" to stop inflation from pushing up wages, giving a clear hint about the possibility of a rate rise ahead.
But the market showed muted reaction as investors have begun to take the view that US economic weakness and worries about the financial sector will prevent the Fed from lifting rates - currently at 2 percent - in the near future.
The Bank of Japan is expected to leave rates at 0.5 percent for a while. The dollar fell 0.2 percent to 105.94 yen. But dollar selling was limited a day after Institute for Supply Management data showed US factory activity unexpectedly expanded in June after four straight months of contraction. The euro steadied at 167.50 yen.
The Aussie climbed 0.5 percent to $0.9600 recovering from losses made on Tuesday, when the Reserve Bank of Australia kept rates at 7.25 percent and signalled more rate hikes were unlikely in the near term.
The Aussie hit a 25-year high of $0.9668 on Monday. Investors will closely watch June US private sector jobs numbers and May factory orders due later in the day for what they might signal about Thursday's employment data and the pace of economic growth.
Comments
Comments are closed.