New York The U.S. Dollar index fell to an almost one-month low Tuesday following European Central Bank President Christine Lagarde stating that interest rates in the eurozone are likely to be at or near the final quarter in the 3rd quarter. This will give the euro an increase.
Lagarde’s remarks suggested the possibility of an increase of at least 50 basis points on the ECB deposit rate. She also maintained speculation about bigger rate increases in the summer to tackle record-high inflation, largely due to the rising cost of energy due to Russia’s war with Ukraine and massive public sector stimulus due to the epidemic.
The euro was trading up 0.39 percent to $1.0732 as of 10:00 a.m. Eastern Time. In the last seven trading sessions, the single currency has gained 3.7 percent after falling to its lowest point since January 2017, when it was $1.0349 at the beginning of this month.
In the United States, most of the anticipated tightening by the U.S. Federal Reserve has likely been priced in by now as per Marshall Gittler, Head of Investment Research at BDSwiss Holding.
“This difference in expectations could propel EUR/USD higher still over the next several sessions as the market has only recently begun to reprice this differential,” he added.
Minutes of the Fed’s May policy meeting is scheduled to be released on Wednesday.
Nearly 40 of the central banks across the globe have increased their interest rate by at most half a percentage point in a single move this year.
Carsten Brzeski who is the economist of ING located in Frankfurt noted that just eight weeks before the upcoming rate hike scheduled for July 21, many things are still possible to be changed.
“We’re getting inflation data for two more months until then,” he added. “If core inflation accelerates further in a significant way, 50 basis points are possible.”
In the midst of increasing pressure to take bold actions, Other policymakers have consistently argued that the ECB’s ethos of “gradualism” should prevail.
“A 50 basis-point hike is not part of the consensus at this point, I am clear,” Bank of France Governor Francois Villeroy de Galhau stated on Bloomberg Television in Davos, Switzerland on Tuesday. His Italian counterpart, Ignazio Visco, mused this week that the month of July could be “perhaps” the time to raise the rate, but emphasized it was possible to hike in stages, and “we can move gradually.”
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