The dollar fell to a week low against the euro on Thursdaysince the German inflation data contributed to the appreciation of the common European currency and doubts about the banking sector were dispelled.
The dollar index, which measures the currency against six currencies, fell 0.468% to 102.16.
Inflation dropped significantly in Germany in March due to lower energy pricesbut it exceeded forecasts, increasing pressure on the European Central Bank to further tighten its monetary policy.
Besides, Data showed that consumer prices in Spain rose 3.3% year-on-year in March, the slowest pace in the 12 months to August 2021 and less than analysts expected.
The European Central Bank, which made it clear that future subRates will depend on economic datahas raised its main deposit rate by 350 basis points, to 3%, since July, as it tries to rein in rising inflation.
“There is a divergence taking place between the ECB and the Federal Reserve that is going to weigh on the dollar,” said Bipan Rai, head of North American currency strategy at CIBC Capital Markets in Toronto.
“(European inflation data) suggests that the ECB has more work to do and that could narrow the gap between ECB and Federal Reserve interest rates,” he added.
Last week, the Federal Reserve’s Federal Open Market Committee raised interest rates by 25 basis points.as expected, but took a cautious stance on the outlook due to the turmoil in the banking sector.
The euro rose 0.6% to $1.09035, the highest level since March 23. For the year, the euro rose almost 2%, after falling 5.7% in 2022.
“The euro was hit by a perfect storm of shocks for most of last year, but things have turned considerably more positive now,” strategists at BofA Global Research said in a note.
“However, we caution that the market has once again gone ahead, pricing in anticipated Fed cuts, with rally likely to weigh on EURUSD (euro/dollar) in the near term,” the strategists wrote.
Data on Thursday showed the number of Americans filing new jobless claims rose modestly last week, yet showing no sign that tightening credit conditions are having an impact on the job market.
The pound rose 0.6% against the dollar on Thursday, heading for a nearly 3% gain in March, its best monthly result since November, as UK inflation showed no sign of slowing.
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