By Kevin Buckland
TOKYO, Aug 30 (Reuters) – The dollar languished on Tuesday after being pushed back from a two-decade high against its major peers by a reinvigorated euro.
The tables turned for both currencies as traders began to raise bets for a 75 basis point rate hike by the European Central Bank, while reducing the odds of a hike by the US Federal Reserve.
The dollar index – which measures the greenback against a basket of six currencies, with the euro being the most heavily weighted – stood at 108.65 at the start of the Asian day, after falling back from 109, 48 overnight, a level not seen since September 2002.
The euro edged up 0.08% to $1.00045, extending Monday’s 0.32% rally – which was its biggest in nearly three weeks – after failing to hold its head above parity last week.
“The euro has found some stability near parity on reports that a 75bp hike could be on the cards at the September ECB meeting,” said Sean Callow, currency strategist at Westpac in Sydney.
“But euro yields remain unappetizing and the worsening gas crisis in Europe means that more aggressive ECB hikes would only deepen the recession. We expect EUR/USD sets new 20-year lows in the coming days, with 0.98 the next obvious target.”
Traders see more than a 50% chance for a 75 basis point ECB move on September 8 after a parade of ECB speakers at the Fed’s annual symposium in Jackson Hole backed the case for a sharp rise.
By comparison, bets for a 75 basis point Fed hike on Sept. 21, when they were above 70%, fell 75% on Monday.
Monthly US jobs numbers due Friday will be closely watched for further clues on the rate outlook.
The euro was also helped by lower gas prices in Europe after German Economy Minister Robert Habbeck said the country was filling up gas storage facilities faster than expected.
The dollar slipped 0.17% to 138.505 yen, after hitting 139 overnight for the first time since mid-July.
The pound added 0.1% to $1.17175, recovering from a nearly 2.5-year low of $1.16495 hit on Monday.
The Aussie edged up 0.04% to $0.69125, rebounding from $0.6481 in the previous session, a six-week low.
(Reporting by Kevin Buckland; Editing by Jacqueline Wong)