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 the European Central Bank’s interest rate decision later in the day.

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

The euro has stabilized in recent days after eight consecutive weeks of losses, rising 0.1% against the dollar but remaining close to its lowest level since June.

Swaps markets are leaning higher this week, with a 63% chance that rates will rise to 4% on Thursday, the highest level since 1999.

In the government bond market, the policy-sensitive two-year German Bund yield was flat at 3.17%.

Some analysts, including Mohit Kumar, chief European financial economist at Jefferies, believe there is “no urgency for the ECB to raise interest rates.” “Recent data has started to slow down…interest rates are in restrictive territory and the inflation trajectory is lower,” Kumar said.

European stock markets were mixed, with the region’s Stoxx 600 opening up 0.1%, while France’s Cac 40 and Germany’s Dax both fell 0.2%.

The European Central Bank has raised borrowing costs at nine consecutive policy meetings since July 2022 in response to surging inflation. Annual price growth had slowed to 5.3% as of August, still some way off from reaching the central bank’s 2% target.

Concerns among investors and policymakers about stubborn price pressures have intensified in recent days as oil prices climbed to 10-month highs as some of the world’s largest producers announced output cuts.

International benchmark Brent crude rose 0.7% to $92.51 a barrel on Thursday, while U.S. West Texas Intermediate rose the same amount to $89.13 a barrel.

Rising crude oil prices led to higher-than-expected headline U.S. inflation data on Wednesday, but failed to unsettle markets, which continue to bet that the Federal Reserve will keep interest rates on hold at its next policy meeting.

Later in the day, Wall Street’s benchmark S&P 500 opened 0.2% higher, while futures contracts tracking the tech-heavy Nasdaq Composite gained 0.4%, futures contracts showed.

In Asia, Hong Kong’s Hang Seng Index rose 0.2%, while China’s CSI 300 Index fell 0.1%. Japan’s Topix rose 1.1% and South Korea’s Kospi rose 1.5%.