23 Jan 2023
The Euro reached a nine-month high against the Dollar on Monday morning as comments regarding European interest rates indicating further hikes were in contrast to markets pricing in a less aggressive stance from the U.S. Federal Reserve.
The single currency hit a high of $1.0927, breaking the recent top of $1.08875, to reach its highest since April 2022, Reuters reports. It was bolstered by governing council member of the European Central Bank, Klaas Knot who said interest rates would rise by 50 basis points next month and March, and continue to increase in the following months.
A number of analysts polled by Reuters forecast a 50 basis-point rise in March to reach an eventual high of 3.25% from the present 2% rate.
In addition, the Euro is also being bolstered by recession fears easing due to a drop in natural gas prices, as per Rabobank head of currency strategy Jane Foley.
“The growth in confidence in the economic outlook, or at least the removal of a lot of the pessimism, is part of the Euro story.
“Layered on top of that, it looks as if the ECB are going to carry on hiking interest rates fairly aggressively,” she added.
Furthermore, flash surveys on this month’s economic activity due to be published this week are set to reveal further improvement in Europe than the U.S., in part due to declining energy costs.
“The U.S. has lost its global growth leadership position if most recent PMI surveys are to be believed,” said Ray Attrill, head of FX strategy at NAB.
“Additionally, U.S. inflation is seen falling further and faster than the Fed's own projections. Under this scenario, the USD has scope to fall much further this year,” he continued.
The Dollar index was down 0.2% against a basket of rivals at 101.73, not far from its eight-month low of 101.510.