Euro struggles with parity pressure ahead of US inflation data

LONDON (Reuters) – Stocks fell on Wednesday and the euro remained slightly above parity against the dollar, as traders waited to see if US inflation data later strengthened the case for another massive interest rate hike by the Federal Reserve this month.

Recession fears sent European stock markets faltering again after a relatively stable session in the Asia-Pacific region, with South Korea and New Zealand raising their prices again.

London’s FTSE (.FTSE), Germany’s DAX (.GDAXI) and France’s CAC40 (.FCHI) all fell 0.6-0.8%, while the Euro managed to break as high as $1.0050 even as gas prices rose 4.2%/FRX.

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Copper, in line with global growth, reached its lowest level in 20 months after now down 30% since April, although Wall Street futures were pointing higher.

UK economic growth data also provided an unexpected pickup, but investors were much more focused on whether the soon-to-be US inflation figures show it heading towards 9%, which would be the highest since 1981. Read more

Societe Generale’s Kate Jukes said, explaining that the higher the inflation numbers in the US, the clearer the Fed would step in to raise interest rates.

It increased it by 75 basis points at its last meeting, its first move of this size since 1994.

“If (the higher inflation reading) does happen today, that could make the bond market a little nervous again, invert the US yield curve further and send the euro decisively through parity,” said Jokes.

Emphasizing global inflation concerns, the South Korean central bank on Wednesday raised interest rates by 50 basis points, the largest increase since the bank adopted its current policy regime in 1999, and New Zealand’s central bank also raised its third consecutive rate by 50 basis points in a row. . . Read more

Fixed income markets were left waiting until 1230 GMT for US inflation data. German government bond yields rose to 1.15%, after a sharp two-day decline, while 10-year US Treasuries swung at 2.97% as it also absorbed the latest US growth forecast cuts released by the International Monetary Fund. Read more

Jim Reed of Deutsche Bank said warning signs of a bond market slump were now flashing with “increasing concern”. One in particular is the 2-year/10-year US Treasury curve, which has inverted before each of the last 10 US recessions, and is still near the extremes of inversion in this cycle thus far at -8.5 basis points.

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Wall Street futures were pointing to slightly higher starts for the major S&P 500, Nasdaq and Dow Jones after a late dip on Tuesday.

Overnight, MSCI’s broadest index of Asia Pacific shares outside Japan (.

Taiwan stocks led the gains after Taiwan’s Ministry of Finance said Tuesday night that it will activate the Equity Stabilization Fund. The market (.TWII) dropped to a 19-month low that day.

Japan’s Nikkei (.N225) finished 0.5% higher after losing nearly 2% the day before.

Analysts at ANZ said: “The sharp weakness in oil prices in July suggests that (inflation) in June may mark a peak. If so, the more dynamic phase of the Fed’s tightening could end with a 75 basis point rate hike on the 27th. July”.

“However, our expectation is that the underlying strength in core inflation and very negative real policy rates means that a 50 basis point hike in interest rates will remain appropriate after the summer.”

Fears that higher interest rates could bring the global economy to a standstill, or even worse into a recession, have been the main driver behind both the 20% decline in global stocks this year and the surge in the safe-haven US dollar.

The euro, which has fallen more than 11% since last January, was at $1.0050 as investors waited to see if it would drop below $1 for the first time since 2002.

It fell to just my height away on Tuesday, falling to $1.00005.

The dollar was also strong in its other peers, its benchmark against major competitors steady at just under 108.

Oil prices paused their overnight declines. Brent crude was little changed at $100 a barrel, and US West Texas Intermediate crude was at $96.31. Although the industrial metal copper fell another 0.75% on the London Metal Exchange (LME) to $7,310 a tonne after falling to $7202.50.

Meanwhile, the leading bitcoin is up more than 2% and is looking on track for a three-day losing streak, although its price at $1,772 was still trading below the key psychological level of $20,000.

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Additional reporting by Elon John in Hong Kong and Sam Byford in Tokyo. Editing by Alison Williams, Kirsten Donovan

Our Standards: Thomson Reuters Trust Principles.

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