By Chibuike Oguh and Amanda Cooper
NEW YORK/LONDON, Oct 29 (Reuters) - The euro edged higher on Thursday after the European Central Bank kept interest rates unchanged, while the dollar eased against most major currencies after data showing rising US inflation.
The ECB left interest rates unchanged in a well-telegraphed move but warned inflation risks were rising due to surging energy costs. The central bank also announced the early departure of President Christine Lagarde, who will step down on February
7, ahead of the end of her tenure in October 2027.
The euro fell to its lowest against the dollar since May but was last up 0.13% at around $1.1167. The euro weakened 0.21% against the pound to 0.835.
"As expected, the ECB leaves rates unchanged at today’s meeting, but signals that a rate hike in December is firmly in play, citing upside risks to the inflation outlook," said Marchel Alexandrovich, European economist at Saltmarsh Economics.
"The bigger news is the confirmation that Christine Lagarde will leave her post in February, rather than in October of next year. Markets will not be surprised by the announcement, but it will bring into focus the fact that the ECB is heading for a significant reshuffle in the first half of 2027, with Isabel Schnabel, Lagarde, and Philip Lane — the ECB’s de facto chief economist — all set to depart imminently."
US INFLATION SPED UP
US Commerce Department data showed that inflation accelerated in September as consumers paid more for gasoline and other goods, supporting economists' expectations of an interest rate increase from the Federal Reserve in December. The US economy, however, grew faster than expected in the third quarter, helped by resilient consumer spending and AI-driven business investment, data also showed.
The dollar has not reacted significantly to the latest economic events largely because much of the data had been as expected and had already been priced in, said Eugene Epstein, head of structured products for Moneycorp North America.
The dollar weakened 0.27% to 0.826 against the Swiss franc.
Fed Chair Kevin Warsh said on Wednesday inflation can be lowered to the 2% target without having to "throw sand in the gears" and slow growth or raise unemployment, pushing traders to rein in bets for rate hikes in 2027.
Warsh also said the central bank would begin setting aside one of its eight regular policy meetings next year and two in 2028 to discuss major issues facing the institution and would not use them to consider changes in monetary policy.
Still, markets are pricing in a nearly 80% chance of a rate hike in December, according to the CME's FedWatch tool.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.14% to 101.98.
BOJ DECISION IN FOCUS
Attention is also on the Bank of Japan, which concludes a two-day meeting on Friday and is expected to keep rates steady. The Japanese yen weakened 0.05% against the greenback to 157.91 per dollar.
"A hold is widely expected at the BoJ's MPM this week," said Bank of America analysts led by Izumi Devalier in an investor note, referring to the bank's policy meeting. "While we do not expect the meeting to be market-moving for JPY, risks are skewed toward a higher JPY upon more than one hawkish dissent, given resilient underlying inflationary pressure."
The New Zealand dollar was up 0.11% at $0.56320, having slumped nearly 2% following the Reserve Bank of New Zealand's surprise decision on Wednesday to keep rates at 2.75%.
(Reporting by Chibuike Oguh in New York and Amanda Cooper in London; Editing by Nia Williams, Hugh Lawson, Rod Nickel)
