Aussie jumps after inflation data; euro bounces on economic resilience

Wednesday,   25-Jan-2023   11:51 AM (IST)

The Australian dollar surged to a more than five-month high on Wednesday after inflation data came in hotter than expected, bolstering the case for further rate increases, while the euro gained on optimism over the euro zone economic outlook. The Aussie jumped more than 0.8% to $0.7108, its highest level since August, after a shock spike in inflation to a 33-year high last quarter spurred bets that the Reserve Bank of Australia (RBA) would need to continue raising rates. Meanwhile, the kiwi slid nearly 0.6% to $0.6469 earlier in the session and last bought $0.6485, after New Zealand's annual inflation of 7.2% in the fourth quarter came in below its central bank's 7.5% forecast. In other currencies, the euro rose 0.05% to $1.0894, edging toward Monday's nine-month high of $1.0927, as a surprisingly resilient euro zone economy and hawkish rhetoric from European Central Bank (ECB) policymakers supported the single currency. Data on Tuesday showed that euro zone business activity made a surprise return to modest growth in January, indicating the downturn in the bloc may not be as deep as feared. Expectations of further rate increases by the ECB also aided sentiment. Policymakers are committed to taming inflation but are split on the size of moves beyond February's likely half-a-percentage point increase. In contrast, a gloomier outlook is unfolding in the United States as signs of an economic slowdown after aggressive Federal Reserve rate increases last year, are starting to appear. U.S. business activity contracted for the seventh straight month in January, though the downturn moderated across both the manufacturing and services sectors for the first time since September. Against a basket of currencies, the U.S. dollar index eked out a 0.02% gain to 101.93, though not far from last week's nearly eight-month low of 101.51. Sterling slipped 0.15% to $1.2322, while the Japanese yen last bought 130.53 per dollar. Prime Minister Fumio Kishida said he would make a decision on the next Bank of Japan (BOJ) governor while watching the economic trends. Current BOJ governor Haruhiko Kuroda's term ends in April.