A look at the day ahead from Dhara Ranasinghe.
Just a few weeks ago, it appeared that there was little that could knock a robust dollar. Fast forward, and uncertainty over the timing of Federal Reserve tapering is providing ammunition for dollar bears.
And recent days have seen the greenback undermined further as hawkish comments from a slew of European Central Bank policymakers have made investors sit up and sense signs of a shift in euro area monetary policy.
Don't forget the backdrop to the barrage of hawkish ECB talk was data showing consumer inflation in the currency bloc has surged to a 10-year high - challenging the view that price pressures are transitory.
Inflation is at risk of overshooting the ECB's projections, Bundesbank President Jens Weidmann said on Wednesday.
So no surprise then that the euro is trading near one-month highs above $1.18, having recovered around 1.5% from 9-1/2 month lows hit less than two weeks ago. The dollar index is not far off its lowest levels in almost a month.
Euro area bond yields too have shot up.
Both data and central bank-speak will remain in the spotlight. Thursday's highlights include July U.S. industrial production, factory orders and trade balance data, along with the weekly initial jobless claims.
Concern about a slowdown in China, the world's number two economy, is keeping world equity markets in a cautious mood. Asian shares held just below five-week highs, while European and U.S. stock futures were marginally lower.
Bank of Japan board member Goushi Kataoka warned the coronavirus may weigh on the economy longer than initially expected, warning of heightened risks to the central bank's forecast of a moderate, export-driven recovery.
Elsewhere, oil prices fell after OPEC+ agreed to keep its policy of gradually returning supply to the market at a time when coronavirus cases around the world are surging and many U.S. refiners, a key source of crude demand, remained offline.
Key developments that should provide more direction to markets on Thursday:
- Australia trade surplus hits record in July as resources boom
- U.S. venture capital firm Advent International and Aurora Investment offered to buy Sweden's SOBI for $8 billion
- Euro zone July PPI
- U.S. treasury auctions 4 week tbills
Graphic: Euro on the rise: https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnnxlwpq/euro0209.png
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