“Investors were looking for an even cooler reading of German inflation, and that’s why the euro benefited in a little bit of a relief rally,” Omer Eisner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “Following Spain’s CPI data overnight, investors were positioning for a potentially worse reading of German CPI.”
The euro has weakened 1.2 percent in the past three months in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar also dropped 1.2 percent, while the yen strengthened 1.4 percent.
“Disappointing inflation data will heighten market expectations of an ECB rate cut,” said Masato Yanagiya, head of foreign exchange and money trading at Sumitomo Mitsui Banking Corp. in New York.
ECB Governing Council member Luis Maria Linde said this week policy makers take the risk of deflation seriously and more monetary easing hadn’t been ruled out.
The council will keep the benchmark interest rate unchanged at a record-low 0.25 percent when it announces a policy decision on April 3, according to most economists surveyed by Bloomberg. Goldman Sachs Group Inc. is the only institution to predict a cut to 0.1 percent.
The Australian dollar gained to the strongest since November as Li voiced confidence in China’s growth and said the nation can’t ignore “difficulties and risks” from downward pressure on the economy. China is Australia’s largest trading partner.
The Aussie has gained 1.9 percent this week, the most since the five days ended Feb. 7, to 92.52 U.S. cents. It touched 92.95 cents today, the highest since Nov. 21, before trading little changed at 92.53 cents.
New Zealand’s currency rose as much as 0.3 percent to 86.97 U.S. cents, the strongest level since Aug. 2, 2011, before trading little changed at 86.70 cents.
Interest-rate swaps data compiled by Bloomberg showed traders were certain the Reserve Bank of New Zealand will increase borrowing costs at its next policy review on April 24. Bank Governor Graeme Wheeler raised the official cash rate by a quarter-percentage point to 2.75 percent at the most recent meeting on March 13.