FOREX-Euro fragile as Fed hike looms, gas risks weigh

By Rae Wee SINGAPORE, July 27 (Reuters) – The euro suffered losses on Wednesday after its biggest drop in two weeks as a cut in Russian gas supplies pushed up energy prices, while the dollar held firm ahead of an expected hike in US interest rates. later in the day. The euro fell about 1% to $1.0108 overnight, the biggest drop since July 11 and was flat in early Asian trade at $1.0139. Europe’s growth remains vulnerable to Russian gas supplies, which have become a major risk since the start of the war in Ukraine. Flows along the Nord Stream pipe from Russia to Germany fell on Tuesday and will continue to fall on Wednesday. “Energy supply is likely to remain a key issue for the European economy over the coming months,” said Kristina Clifton, currency strategist at Commonwealth Bank of Australia. “The euro may trade below parity, more than briefly (and) sooner rather than later.” Elsewhere, movements were restricted ahead of the Federal Reserve policy announcement due at 1800 GMT. The yen remained stable at 136.98 to the dollar. The Australian and New Zealand dollars edged higher in early trading but were held below Tuesday’s highs. The British pound hovered at $1.2048. Analysts said the Australian dollar could rise if inflation data due at 01:30 GMT surprises on the upside. Headline inflation is expected to peak at 6.2% in three decades. The Aussie was last up 0.2% at $0.6950 and the Kiwi was up 0.2% at $0.6243. Markets priced in a 75 basis point hike from the Fed later Wednesday, with a 13% chance of a 100 basis point hike. The focus will also be on the 6.30pm GMT press conference for any hint that policymakers’ will to keep rising is weakening as growth slows. “It’s more of a wait-and-see attitude than expecting a big surprise,” said Galvin Chia, emerging markets strategist at NatWest Markets. He expects the US dollar to remain supported by longer-term safe-haven flows amid a darkening global outlook. Overnight data showed U.S. consumer confidence slumped to a near year-and-a-half low and new home sales slumped, while Walmart shares slid after the retailer issued a a profit warning. Last week, European manufacturing data was soft. “Downside risks to eurozone growth and broader global growth concerns tend to suggest greater dollar strength,” Chia said. The US Dollar Index stood at 107.08, not far below the 20-year high from mid-July of 109.290. It gained 0.64% overnight, snapping three consecutive bearish sessions. ================================================= ===== Currency Bid Price at 0111 GMT Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar $1.0140 $1.0117 +0.24% -10.80% +1.0145 +1.0119 Dollar/Yen 137.0400 136.9500 + 0.13% +0.00% +137.1100 +136.8100 Euro/Yen Dollar/Swiss 0.9621 0.9632 -0.10% +5.49% +0.9628 +0.9621 Pound sterling/Dollar 1 .2040 1.2030 +0.11% -10.95% +1.2053 +1.2030 Dollar/Canadian 1.286 -1.286% 0.00% +1.2888 +1.2863 Aussie/Dollar 0.6952 0.6937 +0.22% -4.36% +0.6958 + 0.6938 NZ 0.6244 0.6228 +0.24% -8.79% +0.6247 +0.6238 Dollar/Dollar (Reporting by Rae Wee; Editing by Sam Holmes)