Rate hike bets lift the euro and strengthen the US dollar

The dollar was firm on Wednesday as stronger-than-expected U.S. economic data and hawkish comments from the Federal Reserve pointed to higher interest rates, while bets on higher rates in Europe also helped the common currency to hang above parity.

German inflation has hit its highest level in nearly 50 years and a growing chorus of European Central Bank officials calling for big rate hikes has markets pricing in a more than equal chance of a rate hike. by 75 basis points next week.

The euro rose 0.16% to hit $1.0003 at the start of Asian trading, which, if sustained, would mark a third session of consecutive gains. Eurozone inflation data is due at 09:00 GMT.

The U.S. dollar index, which measures the greenback against a basket of currencies, hovered at 108.71, just below a two-decade high of 109.48 hit on Monday as the dollar gained on the sterling, the aussie and the kiwi overnight.

The rolling yen stabilized at 138.56 to the dollar.

Chinese business surveys due at 01:30 GMT will be closely watched in the Asia session and could weigh on the yuan and the region’s commodity currencies – such as the Australian dollar – if the data disappoints.

Another month of manufacturing contraction is expected for August, with a reading of 49.2 expected, slightly higher than July’s reading of 49.0.

“I think the recent data, particularly the industrial earnings that came out over the weekend, point to the risk that we could actually have a more serious downside surprise there,” said strategist Rodrigo Catril. in foreign currency at the National Australia Bank in Sydney. .

The Australian and New Zealand dollars suffered losses, but both stabilized early in trade to put the Aussie at $0.6861 and the Kiwi at $0.6139.

The yuan was under pressure at 6.9211 to the dollar in offshore trading.

US job openings rose by 199,000 to 11.239 million in July, data showed overnight, indicating continued strong labor demand and possibly foreshadowing a strong performance for the data wider on labor expected on Friday.

New York Fed Chief John Williams told the Wall Street Journal that it will take “time” before interest rates are cut, while Atlanta Fed Chairman Raphael Bostic , said: “I don’t think we’re done tightening up.”

Traders are pricing in a 69% chance of a 75 basis point hike in the fed funds rate next month.

The pound gained 0.1% to $1.1666 in early trading, after hitting a fresh 2.5-year low at $1.1622 overnight.