New York, United States – The euro on Wednesday jumped back above parity with the dollar, the US currency sliding against its main rivals on concerns over the world’s biggest economy and the prospect of slower interest rate hikes.
The euro bounced back above one dollar for the first time since mid-September, helped also by expectations of a big interest-rate hike from the European Central Bank on Thursday.
There were large gains against the dollar also for the British pound and yen, helping them recover some ground following the recent sharp losses.
The dollar retreated following “a string of negative [US] economic data released since the beginning of the week,” noted ActivTrades senior analyst Ricardo Evangelista.
Poorly received data, including slower house price growth and weaker consumer confidence, showed that big rate hikes from the Federal Reserve are “starting to open some cracks in the American economy,” he said.
“The Federal Reserve has been hiking rates aggressively in an attempt to bring inflation under control, and the country’s economy is starting to suffer as a result,” Evangelista added.
A string of poor economic news has been welcomed by investors as it opens the possibility that the Fed can slow down or end its interest rate hikes sooner. The recent news has seen risk investments like equities rebound in recent weeks.
The Bank of Canada on Wednesday increased its main rate by a smaller-than-expected 0.5 percentage points.
Market analyst Michael Hewson at CMC Markets said the move “suggests that central banks are starting to wake up to the possibility that too aggressive rate rises could do more harm than good.”
He added: “It’s also got markets asking the question, could the Fed follow suit next week after another poor set of housing numbers from the US.”
Wall Street stocks, which had rallied the last three days on hopes of expectations of moderating Fed policy, mostly fell following disappointing results from Boeing and tech giants Microsoft and Google parent Alphabet.
In Europe, London, Frankfurt and Paris stocks all ended the day higher.
Sterling on Wednesday jumped more than one percent against the dollar, winning a boost also from markets welcoming the appointment of Rishi Sunak as British prime minister.
The move was seen as offering stability to the UK economy after weeks of upheaval fueled by predecessor Liz Truss’s tax-cutting budget.
“The pound pushed back above the 1.1600 area against the US dollar today and risen against the euro despite the prospect that next week’s budget statement has been delayed until 17th November in order to allow time” for updated fiscal forecasts, said Hewson.