Euro rose after inflation hit a new record high

On Wednesday, the euro climbed for a third straight day from a 20-month low last week.

The euro rose on Wednesday after inflation in the eurozone hit a new record high, signaling that the European Central Bank’s aggressive monetary policy is starting to bear fruit. The single currency was trading at 1.1411 francs in early trading, up from 1.1384 francs, where it closed on Tuesday. Inflation in the bloc rose to 2.0% in December, the highest since records began in 1998. The ECB has been trying to stoke inflation since 2014 to raise wages and increase productivity.

Overview of the Euro and its peers

At 5.2% in January, price growth is more than twice the ECB’s 2.2% target.

The euro has fallen almost 8.1% in three months. Some experts expected that the ECB would be the last major central bank to increase interest rates after shrugging off inflation.

After data was released, the euro strengthened by 0.4% versus the dollar to $1.13051. Investors assessed the ECB’s chances to signal a quicker path for policy tightening at its meeting on Thursday.

Head of foreign exchange at Commerzbank, Ulrich Leuchtmann, said the money market was pricing in an ECB rate increase.

He said that in the short term, the impact on the euro would depend on the speech of ECB President Christine Lagarde tomorrow.

Leuchtmann added that some market participants expect the ECB to have to sound hawkish tomorrow.

In the meantime, the dollar retreated from an 18-month high, as U.S. Fed officials warned against aggressive rate increases this year.

The dollar fell against a basket of currencies for a third day, slipping 0.25% to 96.016.

The sterling climbed to a nine-day high against the dollar. It was up 0.2% at $1.3543 ahead of a Thursday Bank of England policy meeting.

Investors have entirely priced in an anticipated increase to 0.6% on Thursday.

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