LONDON, Jan 30 (Reuters) – The euro rose on Monday after unexpectedly high Spanish inflation data raised expectations for a stronger euro zone picture on Wednesday, while the dollar remained flat near an eight-month low ahead of a slew of central bank meetings this week.
The euro rose 0.2% to $1.0891 after data showing Spain’s consumer prices rose 5.8% in January compared to the same month last year, faster than an increase of 5.7% in the year recorded in December and the first increase since last July.
“Today’s data will underline expectations for a 50 basis point hike from the ECB on Thursday and also indicate that rates will be moved higher,” said Niels Christensen, chief analyst at Nordea .
The US dollar index, which measures the currency against a basket of peers including the euro, was little changed at 101.88, after hitting an eight-month low of 101.50 last week.
It fell more than 1.6% in January and is on track for a fourth consecutive monthly loss, pressured by expectations that the Fed is nearing the end of its rate hike cycle and that interest rates will not have to rise as much as previously feared.
Movements were still relatively subdued ahead of policy meetings at the Fed, the European Central Bank (ECB) and the Bank of England (BoE) later this week.
“The euro moved higher after the Spanish CPI data, but there is also risk-off sentiment which should be somewhat positive for the dollar,” Nordea’s Christensen said, noting that equity futures were lower in the United States and Europe.
“I don’t expect the euro-dollar to break higher any time soon before the Fed and the ECB,” Christensen added.
The Fed is widely expected to deliver a 25 basis point rate hike – down from its 50bp and 75bp hikes last year – while market watchers they say the BoE and ECB are likely to raise rates by 50bps each.
The euro, which is headed for gains of nearly 1.7% in the month, has drawn support from continued harsh rhetoric from ECB policymakers and easing fears of a deep recession in the eurozone.
Elsewhere, the yen fell 0.3% to 130.195 per dollar after Bank of Japan governor Haruhiko Kuroda said on Monday that the central bank should continue its easy policy.
The Australian dollar fell 0.5% to $0.7071 but was on track for a monthly gain of almost 4%, after Australia’s inflation rate fell to a 33-year high three months, causing traders to increase bets that the Reserve Bank of Australia will have to tighten interest rates further.
With China returning from its Lunar New Year holiday, the focus will be on the upcoming release of its purchasing managers’ index (PMI) data on Tuesday.
“So far, the data coming from China, or the vibes coming from China, have the opinion that a good reopening in terms of activity is likely to happen,” said Rodrigo Catril , currency strategist at National Australia Bank.
Onshore yuan jumped against the dollar on Monday, rising roughly 0.5% to 6.7425, as investors cheered signs of economic recovery indicated by healthy holiday spending and data of tourism.
(Reporting by Samuel Indyk and Susan Mathew in London and Rae Wee in Singapore; Editing by Bradley Perrett, Christopher Cushing and Hugh Lawson)
