The euro slipped on Monday as data showed eurozone inflation had remained below the European Central Bank’s 2 per cent target ceiling for a 10th month.
Annual inflation growth stood at 1.9 per cent in June, in line with the expectations of the ECB and analysts.
Although the central bank expects inflation to rise above its ceiling later in the year, Monday’s data gave investors the chance to take some profits. After flirting with a fresh record high against the dollar, the euro slipped back and was a fraction lower at $1.3778 in late New York trade. The euro fell 0.1 per cent against sterling to £0.6764.
The single currency gained some support, however, from comments by ECB board member Guy Quaden, who said the euro’s move against the dollar was “not incomprehensible”.
Mr Quaden said the ECB remained set against “brutal and excessive” moves in the exchange rate, but the euro’s recent highs reflected slowing economic activity in the US and a strong upswing in the eurozone.
The single currency rose 0.1 per cent against the yen to Y168.11.
Profit-taking in some yen-based carry trades initially boosted the Japanese currency in Asian trading hours, as volumes were hit by a public holiday in Japan. But stronger-than-expected inflation in New Zealand put yields back at centre stage, prompting fresh yen selling.
The kiwi dollar rose 0.6 per cent to Y96.37, while the Australian dollar, which also benefits from high interest rates, rose 0.4 per cent to Y106.38.
Against its US counterpart, the New Zealand dollar rose 0.8 per cent to $0.7925, having touched $0.7932, a level not seen since the kiwi was freely floated in 1985.
Sterling was buoyed by the rising prospect that UK inflation may not fall in line with the Bank of England’s expectations.
Analysts at Capital Economics said increases in oil prices and potential rises in food prices suggested the BoE’s expectations of a sharp fall in UK consumer price inflation over the coming months may now be disappointed.
“The longer the headline rate remains above target due to food and energy prices, the greater the risk that the core rate will rise too as inflation expectations remain elevated and wage growth responds,” analyst Jonathan Loynes said.
The pound rose 0.2 per cent against the dollar to $2.0372, having touched a 26-year high of $2.0405. Against the yen, sterling rose 0.1 per cent to Y248.46.
The Brazilian real edged lower on expectations Brazil’s central bank would cut interest rates by 50 basis points tomorrow. At 12 per cent, rates remain supportive of further gains for the real, but analysts expect a sustained move by monetary authorities. The real was down 0.4 per cent against the dollar at R$1.870.