Title: Dollar Edges Lower; Euro Recovery Gains Traction

Aug 31, 2022 03:01AM ET

By: AnalysisWatch

The US dollar fell in early European trade on Wednesday, retreating from a 20-year high reached at the start of the week as the euro's nascent recovery gathered pace.

The US dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1 percent lower at 108.662 at 3:00 p.m. EDT, after beginning the week at a new two-year high of 109.48.

However, the dollar struggled to make further headway as members of the European Central Bank joined the fight against inflation, also expressing a strong determination to do so at the Jackson Hole symposium.

The euro plays a big role in the overall direction of the greenback, making up nearly 60% of the dollar index, and these hawkish testimonies have helped the single currency rally more than 1% from its two-decade low on August 23.

With that in mind, attention will turn later on Wednesday to the release of the Eurozone’s consumer price index for August, with annual inflation expected to accelerate to 9.0% from 8.9% in July, well above the ECB's 2% target.

According to Goldman Sachs in a recent note, both the Eurozone and the UK are headed for recession this year, but rising inflation will still force the region's two largest central banks to raise interest rates sharply.

Goldman Sachs warned that if gas prices remain high in the coming months, UK inflation could reach 22% next year, sending the EUR/USD up 0.1% to 1.0017 and the GBP/USD up 0.2% to 1.1680.

After data showed that retail sales in Japan rose more than expected in July, USD/JPY fell 0.3% to 138.39.

The risk-sensitive AUD/USD rose 0.6% to 0.6895, supported by signs of a recovery in China's manufacturing sector, given that Australia is a major exporter of raw materials to China.