Currency markets subdued as oil shock lifts global yields; ECB, US inflation eyed

Elsewhere, the New Zealand dollar was 0.3% stronger at $0.5851, while the Australian dollar was flat at $0.7215. China's offshore yuan was flat at 6.705 per dollar, hovering near its strongest level in nearly four years, after data showed China's producer and consumer price inflation rose amid higher energy costs. The greenback, however, found only marginal relief, easing against major peers after an earlier move higher. The euro and sterling both edged up, last at $1.1639 and $1.3555, respectively. The yen also stood tall near a seven-month high, up roughly 0.1% at 153.35 ahead of an expected Bank of Japan rate hike next week. The dollar index, which measures the greenback against a basket of currencies, gave up earlier gains and eased to 98.73. "There's a dynamic there where ultimately, safe-haven hedge policy is a dollar. It would be expected to have traded firmer, but it hasn't happened," said Richard Franulovich, head FX srategy at Westpac Institutional Bank. He added that markets were becoming less twitchy to oil shocks as the war dragged on, while debasement trades, global central bank tightening and a more interventionist Treasury Department were all drags on the dollar "washing through in the background." Currency markets treaded water on Thursday as investors weighed a fresh surge in oil prices and global bond yields, while the dollar found little support ahead of inflation readings that could shape the U.S. Federal Reserve's policy outlook. Brent crude futures remained firmly above $100 a barrel after breaching the level on Wednesday, as Iran and the U.S. engaged in the biggest wave of attacks on shipping by both sides since the start of the war, threatening to worsen the disruption of energy supplies from the Middle East. Fresh energy-induced inflation pressure sent global bond yields back on an upward trajectory, with benchmark 10-year Treasury yields hitting their highest levels since 2023 as a buyback programme of longer-dated bonds also disappointed. The European Central Bank looks set to raise interest rates on Thursday for the second time this year, and is expected to signal that it is ready to tighten further if the inflation outlook does not improve. Meanwhile the Bank of Japan is also expected to hike interest rates to 1.25% on September 18 and then to 1.75% in the second quarter of 2027 as earlier than previously thought amid persistent concerns over broadening price pressures and yen weakness. Market focus will turn to U.S. inflation readings, including producer prices later on Thursday, and CPI on Friday, the last set of key data releases ahead of the FOMC meeting on September 15 to 16. Traders are now pricing a roughly 60% chance of a Federal Reserve rate hike this month after Friday's stronger-than-expected nonfarm payrolls report. "While higher inflation may warrant tighter policy, additional rate hikes would also increase government borrowing costs at a time when fiscal deficits and debt servicing burdens are already under scrutiny," said Lloyd Chan, senior currency analyst at MUFG.

Currency markets subdued as oil shock lifts global yields; ECB, US inflation eyed

Other currencies in Asia-Pacific and China

Dollar eases as euro, sterling and yen firm

Currency markets subdued as oil and yields rise

Central bank decisions and U.S. inflation in focus

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