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Dollar set for weekly fall as euro bounces on ECB hike

September 10, 2022

London, Sept. 9 (BNA): The dollar was on track for its first weekly fall in four on Friday, as a hawkish rate hike from the European Central Bank lifted the euro and investors looked to U.S. inflation data early next week.

The dollar lost ground across the board, with the dollar index - which tracks the greenback against six major peers - falling as much as 1.1% on the day. It was last down 0.7% at 108.770 and is set for a 0.8% weekly fall, Reuters reported.

Among the big gainers was the euro, which leapt as much as 1.2% to a three-week high of $1.01140 , a day after the ECB raised its key interest rate by an unprecedented 75 basis points (bps).

It was last up 0.7% at $1.00645.

'This is clearly an interest rate differential story,' said Samy Chaar, chief economist at Lombard Odier.

'We have yields in Europe that continue to be well supported following the ECB, that was – as expected - hawkish through all the policy instruments. And on the other hand, U.S. yields are backing down a bit.

'Putting the two together, that's probably what is behind the retreat of the dollar.'

Europe still faces a torrid economic outlook, with sky-high energy prices squeezing consumers and businesses. European Union energy ministers were split on Friday over whether to cap Russian gas prices, as they met to work out steps to shield citizens.

Markets are pricing in an 86% chance of the U.S. Federal Reserve following the ECB's suit with its own 75 bps hike this month, with fresh U.S. consumer price data next week likely to be closely watched.

Currencies perceived as riskier bets also benefitted from a pick up in market sentiment to end the week, reflected in gains across European stock markets.

Sterling gained 0.8% to $1.15925 , after a modest dip the previous day after the death of Queen Elizabeth. Britain's King Charles is set to address the nation later on Friday.

The Bank of England said on Friday it would delay its next monetary policy meeting by one week due to the period of royal mourning.

The Japanese yen was headed for its best daily jump in a month, up 1.5% to 141.985 yen per dollar , as it clawed away from recent 24-year lows.

Bank of Japan Governor Haruhiko Kuroda said on Friday that rapid yen moves were undesirable after a meeting with Prime Minister Fumio Kishida.

The Australian dollar was also on track for its best daily gain in a month, up 1.4% versus the dollar to $0.68480, also rebounding from deep lows.

Even beaten down cryptocurrencies advanced at the dollar's expense, with bitcoin back above $20,000 and up 9%.