Dollar regains support; euro weak ahead of inflation data

By Peter Nurse 

Investing.com - The U.S. dollar rose in early European trade Thursday, regaining its firm footing, while the euro slipped ahead of key Eurozone inflation data.

At 03:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 104.737, near two-month highs.

The dollar has been supported by higher U.S. Treasury yields, helping the greenback rebound after logging sharp overnight losses.

This followed Minneapolis Federal Reserve Bank President Neel Kashkari suggesting that a 50-basis-point rate hike at the U.S. central bank's next meeting later this month was still a possibility.

"I think my colleagues agree with me that the risk of under-tightening is greater than the risk of overtightening," Kashkari said at a meeting Wednesday, adding that rates may ultimately need to go higher than the 5.4% level he had thought in December would be adequate.

The market is now pricing at a higher peak of 5.5% for the Fed's policy rate in September, a considerable leap up from the current range of 4.5-4.75%.

Elsewhere, EUR/USD fell 0.3% to 1.0633, after climbing 0.9% on Wednesday, its sharpest rise in a month.

The focus Thursday will be on the latest release of the Eurozone consumer price index for February.

Initial expectations were for the annual figure to fall to 8.2% in February, from 8.6% the prior month. However, data from Germany, France and Spain have all come in above expectations, pointing to the distinct possibility of a nasty higher surprise, piling the pressure on the European Central Bank.

The European Central Bank may need significant rate hikes beyond March, Bundesbank President Joachim Nagel said on Wednesday, with the central bank committed to an increase of 50 basis points this month.

"The interest rate step announced for March will not be the last," Nagel said in a speech. "Further significant interest rate steps might even be necessary afterwards, too."

GBP/USD fell 0.6% to 1.1965, weighed by comments from Bank of England Governor Andrew Bailey, who said on Wednesday that another rate hike was not inevitable, implying that the U.K. central bank was nearing the end of its tightening cycle.

USD/JPY rose 0.4% to 136.75, with the higher U.S. yields pressuring the yen. NZD/USD fell 0.7% to 0.6218, AUD/USD dropped 0.4% to 0.6731, and USD/CNY rose 6.9095, handing back some of Wednesday's gains after the healthy Chinese manufacturing activity data.