The euro traded lower on Thursday after the European Central Bank (ECB) kept interest rates unchanged as expected, while the US dollar index strengthened after US labor and manufacturing market data.
The ECB left rates unchanged and gave no view on next steps, arguing that domestic price pressures remain high and inflation will be above target until next year, leaving markets to interpret President Christine Lagarde's comments for clues about next steps from the central bank.
“Compared to the Fed, the ECB may be the first to cut rates, but they won't be the fastest. When the ECB cut last time, it was a cautious cut, now every meeting will be a live meeting where data will determine every move,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“When the Fed cuts rates, it will be such a confident cut that it's expected that a month or two of bad data won't throw them off their reduction path. It's a little disheartening that the Fed waited so long to cut rates, even though it will eventually make the direction clearer.”
The euro was down 0.26% at $1.0909, easing from a four-month high of $1.0947 reached in the previous session.
On the US side, initial weekly jobless claims rose by 20,000 to 243,000, above the 230,000 estimate from economists polled by Reuters, although it was not considered a significant change in the labor market due to seasonal factors.
Also, a measure of manufacturing activity in the US Mid-Atlantic region grew more than expected in July, driven by a surge in new orders.
The US dollar index, which measures the US dollar against six major currencies, strengthened 0.27% to 103.95 after touching a four-month low of 103.64 on Wednesday.
The Federal Reserve is scheduled for its next policy announcement at the end of July, with markets expecting only a slim chance of a cut of at least 25 basis points (bps), while almost entirely expecting a cut at the September meeting, according to CME's FedWatch Tool.
Fed policymakers expected to share views include Bank of San Francisco President Mary Daly, Bank of Dallas President Lorie Logan and Governor Michelle Bowman.
Sterling was down 0.25% at $1.2975 after British data showed wages grew at a slower pace, but was still strong enough to keep doubts about an upcoming rate cut from the Bank of England.
