The euro dropped to two-year lows against the dollar on Tuesday after euro area inflation data missed expectations, which eclipsed a soft consumer confidence report in the U.S. Eurostat, the statistics arm of the European Union, reported earlier that the euro area's annual inflation rate fell to a five-year low of 0.3% in September from 0.4% in August. Core inflation, which strips out food, energy, alcohol and tobacco costs, came in at 0.7%, down from 0.9% in August. Slumping consumer prices fueled market expectations for the European Central Bank to implement fresh stimulus measures to stave off the threat of deflation in the region after the bank unexpectedly cut rates to record lows last month. A separate report showed that the euro zone’s unemployment rate was unchanged at 11.5% in August.
The pound traded lower against the dollar on Tuesday after investors shrugged off lackluster U.S. data and bet the Federal Reserve remains on track to hike interest rates sooner in 2015 than once expected. In the U.S. earlier, the Conference Board reported that its consumer confidence index fell to 86.0 this month from 93.4 in August, whose figure was revised up from a previously reported 92.4. Analysts expected the index to decline to 92.5 in September. A separate report showed that a Chicago-area purchasing managers' index fell to 60.5 this month from 64.3 in August. Analysts had expected the index to decline to 61.9 in September. The dollar still enjoyed support due to expectations that the Fed is moving closer to hiking interest rates, as despite hiccups here and there, longer-term analysis of U.S. indicators points to an economy that is gaining steam. Meanwhile in the U.K., the Office for National Statistics said that the revised gross domestic product expanded by 0.9% in the second quarter, beating expectations for 0.8% growth and up from a previous estimate of 0.7%.
The Japanese yen was flat Wednesday ahead of the quarterly Tankan survey with markets focused on near-term scope for further dollar strength. The Bank of Japan releases its third quarter Tankan survey at 08:50 Tokyo (23:50 GMT). The September Tankan is expected to show that capital investment plans by major companies will rise 7.2% on year in fiscal 2014, slightly lower than the 7.4% gain projected in the June survey. Overnight, the dollar traded higher against most major currencies as investors took up fresh positions assuming the Federal Reserve will close its bond-buying program in October and hike rates in 2015.
