The euro edged higher on Friday after core inflation gauges in the eurozone held firm this month, with the single currency posting its biggest monthly gain in 17 months on the back of broad-based US dollar weakness.
However, analysts said policymakers would focus on the weak outlook for inflation with growing concerns about how much firepower the European Central (ECB) bank could potentially roll out to support a struggling economy and boost prices.
Overall inflation held steady as expected at 1.2 percent this month, well short of the ECB target of almost 2 percent.
However, a closely watched core figure, excluding volatile food and energy prices, jumped to 1.2 percent from 1 percent last month.
ING strategists said headline inflation would continue to face downward pressure in the coming months as businesses have indicated softening expectations for selling prices on the back of economic uncertainty.
“The improved core inflation figure will therefore be easily brushed aside in the discussions about fresh ECB action: It’s coming,” they said in a note.
Against the US dollar, the single currency edged 0.2 percent higher at US$1.1387, virtually unchanged for the week.
On a monthly basis, the euro rose 1.7 percent, its biggest monthly gain since February last year.
Versus the Swiss franc, the euro was broadly flat at 1.11 euros per franc.
While inflation expectations in the US and Europe have declined in the past few weeks, as measured by forward-starting swaps, US gauges have stabilized after the US Federal Reserve last week opened the door to rate cuts.
In comparison, policy interest rates in Europe are already in negative territory and Europe’s most widely watched measure of inflation expectations — the five-year, five-year forward rate — has started declining again.
“The elbow-room for the ECB to ease policy is far more limited than the Fed and that is weighing on the euro,” Commerzbank AG foreign-exchange strategist Esther Reichelt said.
NEW TAIWAN DOLLAR
In Taipei, the New Taiwan dollar rose NT$0.029 against the US dollar to close at NT$31.072, up 0.3 percent for the week.
The US dollar index, which measures the US currency against six of its peers, was at 96.13 on Friday, broadly unchanged on the week.
Markets were also hoping that a meeting between US President Donald Trump and Chinese President Xi Jinping (習近平) at the G20 summit in Osaka, Japan, would bring progress on trade.
The dollar traded at ¥107.66, little changed on the day but up 0.3 percent for the week as the greenback mounted a recovery from a five-month low of ¥106.77 yen reached on Tuesday.
Additional reporting by CNA
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