Euro Jumps Amid Hawkish ECB Signals, Dollar Heavy Before U.S. CPI

The euro jumped to a more than three-week peak versus the dollar on Monday and sterling rose to the highest this month as European Central Bank officials pushed the case for further aggressive monetary tightening.

The greenback idled not far from a two-week low ahead of key U.S. inflation data this week that might allow the Federal Reserve to consider whether to slow the pace of rate hikes at its Sept. 21 policy meeting.

The rate-sensitive Japanese yen found its footing around the mid-142-per-dollar level as U.S. long-term Treasury yields paused their ascent below a nearly three-month high.

The euro leapt as high as $1.0130 early in the Asian day before last trading 0.19% stronger than Friday at $1.0066.

Sterling rose to $1.1681, and was last 0.24% higher at $1.1611.

ECB policymakers see a rising risk that the key rate will need to increase to 2% or more to curb record inflation, sources told Reuters.

In an interview with German radio over the weekend, Bundesbank President Joachim Nagel said that if the picture for consumer prices doesn't change, "further clear steps must follow."

The dollar index, which measures the currency against six major peers, was little changed at 108.82, holding close to those levels after falling back from a two-decade peak reached on Wednesday. It dipped to the lowest since Aug. 30 at 108.35 in the previous session.

Investors are wary ahead of Tuesday's U.S. CPI report, even as Fed officials continued their hawkish rhetoric on Friday, the final day for such comments before a black-out period leading up to the Federal Open Market Committee's deliberations.

Fed Governor Christopher Waller said he supports "a significant increase at our next meeting," while St. Louis Fed President James Bullard reiterated his call for a hike of 75 basis points.

"Officials have clearly articulated the need for the FOMC to keep raising interest rates until there is compelling evidence that inflation is falling," Commonwealth Bank of Australia strategist Joseph Capurso wrote in a client note.

"Regardless of the outcome of the CPI report, we judge the FOMC has much more work to do," meaning more upside for the dollar over the short and medium terms, he said.

The dollar was flat at 142.71 yen, following its retreat from a 24-year zenith at 144.99 from Wednesday.

That came as the benchmark U.S. 10-year Treasury yield, which the currency pair often tracks closely, slowed an ascent that took it to the highest since mid-June at 3.365% last week. It was little changed from Friday at around 3.315% in Tokyo trading.

Meanwhile, Japanese officials again hinted at intervention, with a senior government spokesman saying in a local television interview that the administration must take steps as needed to counter excessive yen declines.

However, analysts doubt such a step would work without the backing of the Fed and other central banks, considering that the Bank of Japan is alone among developed markets in sticking to ultra-easy policy.

"A coordinated effort is needed and right now with major central banks fighting inflation through tighter policy, global official support for JPY seems unlikely," Rodrigo Catril, a strategist at National Australia Bank, wrote in a note.

"If the BOJ really wants to stop JPY's decline, then they need to make changes to their ultra-easy policy," he added. "The pressure is building."

Elsewhere, the Australian dollar edged 0.04% lower to $0.6844, while New Zealand's kiwi added 0.11% to $0.6110.

Leading cryptocurrency bitcoin eased 0.85% to $21,650, finding its footing around that level after bouncing from a nearly three-month low at $18,540 last week.