Euro falls after inflation data, but aims for weekly gains

Analysts do not yet predict the breakdown of the uptrend in the dollar

EUR/USD    chart in 15 minute intervals

The euro tumbled on Friday after eurozone inflation hit a record high but is poised for a weekly gain on hawkish signals from the European Central Bank and a return of some calm to currency markets at the end of the month. This week has been truly wild for the currency market.

The pound sterling also eased as demand pushed the dollar higher at the end of the quarter, but it was approaching its best week against the US currency in 2.5 years as the Bank of England entered the debt market to buy securities for the second straight day in Thursday. On Monday, the pound hit a record low as markets were shocked by the British government’s plan to cut taxes and pay for it with more borrowing.

Data on Friday showed eurozone inflation beat forecasts to hit 10.0% in September, a new record high that will bolster expectations for another massive rate hike next month from the ECB. After several days of growth, traders took profits on the euro.

By 1055 GMT, the euro was trading at $0.9761, down 0.6%, while the dollar index was up 0.5% but on track for a weekly loss.

The pound hit $1.1235, recovering all of its sharp losses from last Friday’s presentation of the new government’s so-called mini-budget. It last traded at $1.1066, down 0.5%.

„As intermarket volatility climbs to new year-on-year highs, credit spreads widen and the market speculates that a financial crisis is imminent in the UK pension fund industry, it may be time to get even more defensive in the FX market,” ING strategists said.

In a move to protect the dollar, demand for the US currency in derivatives markets rose on Friday to its highest level since the COVID-19 crisis in 2020.\

This year, the dollar is up 17% versus its peers, including 7.2% in the current quarter.

Ethan Andrews

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