Euro falls after inflation data but heads for weekly gain

The euro dropped on Friday after inflation in the euro zone hit a record high, but headed for a weekly gain on hawkish signals from the European Central Bank as some calm returned to foreign exchange markets at the end of a wild week.

Sterling was also lower as end-of-quarter demand boosted the dollar, but was headed for its best week against the U.S. currency in 2 1/2 years as the BoE waded into the debt market to buy gilts for a second day on Thursday. On Monday, the pound hit a record low as markets were rattled by the British government’s plan to slash taxes and pay for it with more borrowing. GB/

Data on Friday showed euro zone inflation zoomed past forecasts to hit 10.0% in September, a new record high that will reinforce expectations for another jumbo rate hike next month from the ECB. After several days of gains, traders took profit on the euro.

By 1055 GMT, the euro traded at $0.9761, down 0.6% EUR=EBS, while the dollar index =USD roared 0.5% higher but is on course for a weekly loss.

The pound touched $1.1235GBP=D3, erasing all of its precipitous losses in the aftermath of the new government’s so-called mini budget last Friday. It was last at $1.1066, down 0.5%.

Foreign exchange volatility has surged this week as investors worry about the pace of global monetary tightening and the UK mini-budget fallout, and while nerves calmed on Friday, few analysts think it is over.