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Dollar loses steam, euro on front foot

The US dollar retreated further as the euro extended its overnight bounce on relief Europe might avoid the worst fears concerning energy shortages, and on the chance, that the European Central Bank may deliver a more aggressive rate hike.

The euro tacked on 0.25% to $1.0245, having risen 0.75% the previous day, its strongest daily gain in a month.

Aiding sentiment was news that the ECB is considering raising interest rates by a larger-than-expected 50 basis points, Reuters reported.

The euro has lost about 2.3% since the beginning of July and broke parity with the dollar for the first time in two decades last week following a red-hot U.S. inflation print and fears about a sharp economic downturn in the eurozone.

The US dollar index measure against a basket of key currencies was down 0.14% to 106.52, well off its two-decade peak of 109.29 last week.

The U.S. currency’s retreat has also coincided with reduced expectations of a supersized 100-basis-point rate hike at next week’s Federal Reserve policy review.

The Aussie was up 0.4% at $0.6925, after rising 1.3% overnight and the largest in a month.

Markets are pricing in a 23.2% chance of a 100 bp rate.

The Japanese yen remained an outlier and last traded at 138.155 per dollar, as the Bank of Japan seems determined to stand by its dovish stance.

Bitcoin was steady at $23,300, just off a five-week high hit the day before.

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