Euro inches higher against dollar ahead of ECB interest rate decision

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The euro edged higher against the dollar on Thursday as investors awaited an interest rate decision from the European Central Bank later in the day.

Eurozone policymakers are set to decide on whether to keep the region’s benchmark deposit rate unchanged at a record high of 3.75 per cent or raise it by another quarter of a percentage point.

The euro, which has steadied in recent days after an eight-week losing streak, advanced 0.1 per cent against the dollar but remained near its lowest level since June.

Swap markets this week have been tipped in favour of a rise, pricing in a 63 per cent probability of rates going up to 4 per cent, their highest level since 1999, on Thursday.

In government debt markets, yields on the policy-sensitive two-year German Bund were flat at 3.17 per cent.

Some analysts, including Mohit Kumar, chief Europe financial economist at Jefferies, argued there was “no urgency for the ECB to hike rates”. “Recent data has started to slow [ . . . ] rates are in restrictive territory and trajectory of inflation is lower,” said Kumar.

European equity markets were mixed, with the region-wide Stoxx 600 rising 0.1 per cent at the opening bell, while France’s Cac 40 and Germany’s Dax both fell 0.2 per cent.

The ECB has raised borrowing costs at nine consecutive policy meetings since July 2022 in a push to tackle raging inflation. Annual price rises have since decelerated to 5.3 per cent as of August, with still some way to go until inflation reaches the central bank’s 2 per cent target.

In recent days, investors’ and policymakers’ concerns over stubborn price pressures have grown as oil prices have climbed to a 10-month high on the announcement of supply cuts by some of the world’s biggest producers.

Brent crude, the international benchmark, rose 0.7 per cent to $92.51 a barrel on Thursday, and the US equivalent West Texas Intermediate advanced by the same margin to $89.13.

Rising crude prices translated to a higher than expected headline inflation reading in the US on Wednesday but failed to disrupt markets, which continued to bet that the Federal Reserve would keep rates unchanged at its next policy meeting.

Futures contracts pointed to Wall Street’s benchmark S&P 500 opening 0.2 per cent higher later in the day, while those tracking the tech-focused Nasdaq Composite advanced 0.4 per cent.

In Asia, Hong Kong’s Hang Seng index added 0.2 per cent, while China’s CSI 300 fell 0.1 per cent. Japan’s Topix advanced 1.1 per cent, and South Korea’s Kospi gained 1.5 per cent.