The euro is falling as policy makers at the European Central Bank take a dovish tone

LONDON (Reuters) – The euro fell on Thursday after comments from German policymaker Isabel Schnabel failed to provide solid evidence on whether the European Central Bank will raise interest rates in September, ahead of euro zone inflation data later in the day.

The single currency was last at $1.0888, down 0.3% on the day, but still up about 1% this week.

Schnabel, the European Central Bank’s rate-setting officer, said that eurozone growth was weaker than expected but that did not necessarily negate the need for more interest rate hikes.

“We’ve heard that the most influential hawks on the board are taking a more cautious tone,” said Michael Brown, an analyst at Trader X.

“I think the fact that it points to downside risks to growth puts some downside pressure on the euro this morning.”

Traders had expected the ECB to stick to the current September interest rate at around 60%, having raised bets that they would raise the rate the day before after the release of German and Spanish inflation figures.

Eurozone inflation data will be released at 0900 GMT today.

Sterling, which followed the euro’s gains on Wednesday, was also slightly weaker at $1.2700. Both the pound and the euro are expected to see monthly declines against the dollar in August.

The dollar’s gains fueled expectations that interest rates will last longer at high levels, but they eased this week with hints of slowing spending and employment in the United States.

Although the dollar index is still up by more than 1.4% for the month of August, it is down 0.8% for the week so far. On Thursday, it rose 0.2%.

US data on personal consumption and core personal consumption expenditures – the Fed’s preferred inflation measure – are due later on Thursday.

On Wednesday, the Commerce Department revised down the second quarter growth in the US to 2.1% from the estimate of 2.4%. US jobs data is scheduled for release on Friday, and this week’s second level numbers such as job openings and private sector jobs indicate that the labor market may be running out of steam.

“The dollar’s move was driven on one side by the weak second-tier US jobs data,” said Chris Turner, Head of Global Markets and Regional Head of Research UK and Central and Eastern Europe.

“Trying to fight the dollar is still very difficult at the moment but there will probably be more evidence of a slowdown in the fourth quarter.”

The dollar’s decline this week, along with caution about Japanese government intervention, has stabilized the yen. It is down 2.4% against the dollar this month and 10% for the year, but found some stability at around 146 yen to the dollar. The last price was at 145.855.

Meanwhile, the euro last traded at 158.77 yen, close to a 15-year high of 159.76 reached the day before.

Japanese data was mixed on Thursday, with retail sales growing 6.8% y/y beating expectations of 5.4%, but factory production falling. A rare strike at a Tokyo supermarket may herald upward pressure on wages, although the divide among policymakers suggests a response is a long way off.

A slightly better-than-expected Chinese manufacturing survey kept the yuan, Australian dollar and New Zealand dollar flat, although all three are heading for big monthly declines due to concerns about the economic slowdown in China.

The Australian dollar traded flat at $0.6475, while the New Zealand dollar, which fell 4% in August, settled at $0.5954. The yuan traded at 7.2905 per dollar, with a monthly loss of 2%.

Bitcoin, which rallied this week on a court ruling that boosted prospects for an exchange-traded fund, fell slightly to $27,247.

Our standards: Thomson Reuters Trust Principles.