The euro gained ground on Thursday ahead of the European Central Bank meeting, which is likely to lay out a more detailed plan for unwinding stimulus, perhaps paving the way for a first-rate rise later this year.
The euro climbed 0.12 percent to $1.09050 at 0835 GMT, ahead of the meeting, after hitting its lowest level since early March on Wednesday. In the face of record-high inflation and a war-related recession, the ECB will likely provide some hints about its future policy. According to Antje Praefcke, an FX analyst at Commerzbank (ETR: CBKG), the market would hold off on a significant preference for the euro over the dollar until the key rate is lifted in the fourth quarter.
“I believe the market will want to observe how the Ukraine war and energy sanctions go,” she added.
The Dollar Index Losing Momentum
The dollar index compares the greenback to six other currencies. This index was down 0.1 percent at 99.702 after hitting a high of 100.520 on Wednesday; the highest level since May 2020, boosted by a spike in Treasury rates this week. However, after jumping to a December 2018 record, the benchmark 10-year Treasury yield stalled as inflation data this week, while high, was not as terrible as some had anticipated. The damaged yen found some solace, recovering slightly from a 20-year low versus the dollar. According to research, more than three-quarters of Japanese companies believe the yen has depreciated to hurt their operations.
After jumping to an eight-day high against the dollar due to stronger-than-expected inflation figures, the Swedish crown traded 0.4 percent higher to 9.4380; this strengthened hopes for a Riksbank rate rise sooner rather than later. In February, the bank declared that it aimed to hold rates at 0% until 2024; many people now believe it is impossible. Other central banks have tightened monetary policy, adding to the hawkish global trend.
The Bank of Korea startled markets by raising interest rates. At the same time, Singapore’s Monetary Authority tightened policy, propelling the Singapore currency to its highest level since February. Both the Bank of Canada and the Reserve Bank of New Zealand lifted interest rates by 50 basis points; the highest increases in each bank’s history.