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Rate hike bets buoy euro and bolster U.S. dollar

Image: Reuters Berita 24 English - The dollar was strong on Wednesday because U.S. economic data that was better than expected and hawkish c...

Image: Reuters

Berita 24 English - The dollar was strong on Wednesday because U.S. economic data that was better than expected and hawkish comments from the Federal Reserve pointed to higher interest rates. Rate-hike bets in Europe also kept the euro above parity.

German inflation is at its highest level in almost 50 years, and more and more European Central Bank officials are calling for big rate hikes. This has led the markets to price in a better-than-even chance of a 75 basis point (bps) rate hike next week.

In Asia, the euro went up 0.16 percent to $1.0032. If this keeps up, it will be the third day in a row that it has gone up, but it is still down nearly 2 percent for the month. Eurozone inflation data is due at 0900 GMT.

"The situation isn't much better in Europe. The only thing keeping the euro close to parity is the hawkish language coming from ECB speakers "A currency strategist at the National Australia Bank, Rodrigo Catril, said this.

"The inflation numbers we got from Germany make us think that today's number for the euro zone will also be high."

The U.S. dollar index, which compares the dollar to a group of other currencies, was hovering around 108.64, just below Monday's peak of 109.48, which was the highest level in 20 years. It has gone up about 2.7% this month and is on track to go up for a third month in a row.

Also, sterling went up by 0.21% to $1.1679 after hitting a new 2-1/2-year low of $1.1622 the night before. At 138.61 yen per dollar, the yen stopped falling.

China's factory activity dropped again in August, according to data released on Wednesday. New COVID infections, the worst heatwaves in decades, and a crisis in the property market all hurt production.

The weak China data didn't affect commodity currencies like the Aussie much, though, because they had been hit hard by a strong U.S. dollar the night before. The Australian dollar went up 0.31 percent to $0.68755, but that was after falling 0.7% the night before.

The New Zealand dollar went up 0.19% to $0.6140 after falling 0.43% overnight.

At 6.9029 per dollar, the Chinese offshore yuan was also kept under pressure.

All eyes are still on the U.S. nonfarm payrolls data, which is due out on Friday. A strong report on job openings that came out last night could be a sign of a strong report at the end of the week, which would make the case for more aggressive rate hikes.

The head of the New York Fed, John Williams, told the Wall Street Journal that interest rates won't go down for "a while," while the head of the Atlanta Fed, Raphael Bostic, said, "I don't think we're done tightening."

Traders now think there is a 72.5% chance that the Fed funds rate will go up by 75 basis points next month.

Wednesday was a good day for cryptocurrencies. Bitcoin went up 2.86 percent to $20,385 and Ether, the coin linked to the ethereum blockchain network, went up 5.45 percent to $1,606.3.

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