Euro hits 3-week high on hawkish signals from ECB, weakening dollar

By Kevin Buckland and Alun John

TOKYO/LONDON (Reuters) – The euro hit a more than three-week high against the dollar on Monday as European Central Bank officials argued for further aggressive monetary tightening and the greenback softened against most major currencies, with the exception of the under fire Japanese yen.

The common European currency rose around 1.5% to hit $1.0198, its highest level since Aug. 17, and well up from the 20-year low of $0.9862 hit last week. It was up 0.88% at $1.01345.

“Positions are quite stretched, everyone and their dog have been long in dollars, and we’ve had comments (from the ECB) over the weekend that are very hawkish and have fueled this perception that maybe to be the market is overblown,” said Jane Foley, head of FX. strategy at Rabobank.

Bundesbank President Joachim Nagel told German radio over the weekend that if the consumer price situation did not change, “further clear steps must follow”.

In addition, ECB policymakers see growing risks that they will have to raise their key rate to 2% or more to rein in record inflation in the eurozone, sources told Reuters.

Foley said the possibility of weaker U.S. inflation data on Tuesday, which also boosted stocks, was also driving investors away from the safe-haven dollar, though it was likely just a pocket of catch. of profits.

“As long as the market is worried about taking big risks in high-risk currencies, the dollar will remain firm for another six months or so,” she said.

Euro strength was also seen against the pound and it hit 87.22 pence on Monday, its highest since February 2021.

The greenback’s weakness on the day meant the pound gained 0.8% against the dollar to $1.1678 and hit its highest level this month at the start of trade in London, marking a slight recovery from last week’s 37-year low.

The dollar index, which measures the currency against six major counterparties, fell 0.67% to 108.25 from a two-decade high of 110.79 hit on Wednesday.

Investors are wary of the U.S. CPI report, which Commonwealth Bank of Australia analysts say could determine whether the U.S. Federal Reserve will raise rates by 50 basis points or 75 basis points at its 2019 meeting. next week.

Fed officials continued their hawkish rhetoric on Friday, before a period of blackout ahead of central bank deliberations.

Fed Governor Christopher Waller said he supports “a meaningful hike at our next meeting,” while St. Louis Fed President James Bullard reiterated his call for a 75% hike. basis points.

The dollar was stable against the rate-sensitive Japanese yen at 142.66 yen, slightly off its 24-year high of 144.99 hit last week.

Over the weekend, Japanese officials hinted at intervention to prevent the currency from weakening further. A senior government spokesman said in a local television interview that the administration should take necessary steps to counter excessive declines in the yen.

At the same time, the Bank of Japan is unlikely to step in to support the currency with higher interest rates, sources told Reuters.

The Australian dollar, which generally does well when investors are positive about growth, was up 0.34% at $0.6870 and bitcoin, which is moving in a similar fashion, was up 1.3% around of $22,100, after hitting its highest level since mid-August.

(Editing by Jacqueline Wong, Sam Holmes and Chizu Nomiyama)

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Carol N. Valencia