LONDON:
The euro remained close to a five-year low against the US dollar on Tuesday. The Federal Reserve expected to hike rates this week as traders wait for European Central Bank President Christine Lagarde to provide guidance on her monetary policy plans.
The Fed has taken an increasingly aggressive approach to monetary policy as inflation has risen at its fastest pace in 40 years, while the ECB has been more cautious.
The US central bank is said to raise interest rates by 50 basis points and announce plans to reduce its $9 trillion balance sheet when it closes its two-day meeting on Wednesday.
Meanwhile, ECB Vice President Luis de Guindos said in an interview published by the central bank this weekend that the Governing Council had not discussed “a predetermined path for rate hikes”. He added that much will depend on macroeconomic data in June.
“Following the Guindos’ lenient comments over the weekend, we’ll be following Lagarde’s latest comments today,” said Jeremy Stretch, head of G10 FX strategy at CIBC.
Ms Lagarde is expected to speak later in the day.
Money markets will be pricing 90 basis points in rate hikes before the end of the year, with a first hike expected in July.
Concerns about inflation, growth and energy insecurity due to sanctions imposed on Russia after the invasion of Ukraine have seen the euro fall 14 percent against the dollar in three months.
At 1100 GMT, the single currency was stable at $1,05040. It had fallen to $1,0470 on Thursday, the lowest since January 2017.
“The euro appears to have found some support just above 1.05, helped today by a slightly softer US dollar,” said Jane Foley, head of FX strategy at Rabobank in London.
“The problems with the European Union’s energy security remain precarious, suggesting that the euro is certainly not out of the woods,” she added.
The data gave no support to the euro and showed on Tuesday that unemployment in the euro-zone continued to fall, reaching a new all-time low.
Mr Stretch said he did not expect the data to affect the ECB’s interest rate expectations or the euro.
The dollar was also flat at 103.6 against a basket of currencies, after hitting 103.48 on Thursday, its highest point since December 2002.
While the odds are considered slim, some investors are looking to the possibility of a 75 basis point increase by the Fed or a faster pace of balance sheet deleveraging than currently expected.
In recent weeks, the US dollar has also benefited from safe-haven flows as COVID-19 restrictions in China have raised concerns about global growth.
Against the Chinese yuan in offshore markets, the dollar reached 6.6880, its highest point since November 2020.
The Japanese yen remained just above its 20-year low against the dollar reached on Thursday, as the Bank of Japan strengthened its commitment to keep interest rates ultra-low by promising to buy unlimited amounts of bonds daily to defend its yield target. .
The Japanese currency was last at 130.10, after hitting 131.24 on Thursday, its weakest since April 2002.
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)