FOREX-Euro rallies after report that bigger ECB rate hike is on the cards
Euro adds 1.2% after story based on Reuters source
Dollar also weakened by falling bets on Fed hike
Aussie soars after RBA signals further rate hikes
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LONDON, July 19 (Reuters) – The euro rallied on Tuesday after a Reuters report that European Central Bank policymakers will discuss whether to raise interest rates by 25 or 50 points at their meeting on Thursday to rein in the record inflation.
The euro’s jump away from last week‘s sub-parity levels coincided with declining expectations of an aggressive 100 basis point hike from the Federal Reserve this month, which brought down the dollar.
The euro climbed as high as $1.0259 EUR=EBSup 1.2% on the day and its strongest since July 6 as money markets priced a 60% chance of a 50 basis point rise on Thursday, from 25% on Monday.
The dollar index fell 0.9% to 106.47 =USDa far cry from last week’s high of 109.29, a level not seen since September 2002.
Analysts are hesitant to get bullish on the euro, however, given the lingering concerns over natural gas supplies and the hit to its economy and how surly the ECB can really be.
“In our view, this rally is likely to be short-lived and should provide better entry levels for short euro positions,” said Dominic Bunning, head of European currency research at HSBC.
“Even if the ECB proceeds with a 50bps hike, the positive follow-up for the euro could be limited,” he added, noting that 50bps “doesn’t seem as hawkish anymore” in the face of negatives. larger increases from the Fed and the Bank. of Canada and that nearly 150 basis points of ECB hikes in 2022 were already priced in.
Traders are also preparing to see if Russian gas will resume through the Nord Stream pipe to Germany on Thursday after a shutdown for scheduled maintenance.
Russia’s Gazprom, which operates the pipeline, told customers in Europe it could not guarantee gas supplies due to “extraordinary” circumstances, according to a letter seen by Reuters, upping the ante in an exchange economy with the West.
Elsewhere, the Australian dollar climbed 1.3% to $0.6903 AUD=D3 after Reserve Bank of Australia policymakers said they saw the need for further policy tightening on top of recent hikes.
“The RBA board has raised the intensity of its rhetoric,” Westpac economist Bill Evans wrote in a research note. “Another 50 basis points in August seems highly likely.”
The Japanese yen JPY=EBS rose to 137.57 yen to the dollar, but was not far off a 24-year low before a Bank of Japan policy move on Thursday. The central bank has repeatedly pledged in recent days to continue ultra-easy settings.
Sterling GBP=D3 gained 0.7% to $1.2027, following the broader rebound against the dollar.
World exchange rateshttps://tmsnrt.rs/2RBWI5E
Euro positions and volatilityhttps://tmsnrt.rs/3cmwgMP
(Reporting by Tommy Wilkes; Additional reporting by Kevin Buckland in Tokyo; Editing by Alison Williams and David Evans)
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