The euro dropped 0.20% to $1.1592 on Tuesday as the dollar held near a two-week high. Eurozone headline inflation accelerated even as core price growth eased, complicating the European Central Bank's outlook while traders raised bets on a Federal Reserve rate hike.
The euro dropped 0.20% to $1.1592 on Tuesday, trading on the back foot as the dollar pushed toward a two-week high against major peers.
Dollar gains on resilient labor market
U.S. job openings data reinforced the case for tighter Fed policy. The Dollar Spot Index rose about 0.2% to 99.61, extending gains as a global sovereign debt selloff pushed benchmark yields higher. The move follows Federal Reserve Chair Kevin Warsh's hawkish keynote at Jackson Hole, which sent the 10-year Treasury yield up 3 basis points to 4.80%, its highest level since January 2025.
Job openings were little changed at 7.3 million in July, pointing to a labor market that stayed relatively resilient despite signs of cooling elsewhere. Hires eased to 5.1 million from 5.3 million in June, while total separations slipped to 5.1 million. As a result, money market swaps now imply roughly a 74% probability of a 25-basis-point Fed rate increase at the Sept. 17 policy meeting, a sharp acceleration from 34% before Warsh's address, keeping rate hike expectations firmly in play.
Eurozone inflation split complicates the ECB's picture
Currency desks are also parsing a split in Eurozone price data. Eurozone headline CPI accelerated to 3.3% year-on-year in August, up from 2.9% in July. However, core CPI — which excludes energy, food, alcohol and tobacco — eased unexpectedly to 2.4% year-on-year from 2.5%, while services inflation slowed to 3%.
The divergence complicates the picture for the European Central Bank ahead of its next policy decision. A hotter headline number alongside softer core inflation leaves the ECB weighing conflicting signals just as the dollar's own rate-hike odds climb.
What comes next for the dollar
Foreign exchange desks are watching a string of upcoming U.S. data releases to set the dollar's next move. The July JOLTS report, ADP private payrolls on Wednesday and August Nonfarm Payrolls on Friday will test labor market tightness, and next week's August CPI print will serve as the final test before the Fed's Sept. 17 rate decision, with traders warning a hotter-than-expected reading could push September hike odds toward 100%.
Source: Investing.com
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