Euro reaches a nine-month high as ECB signals at interest rate hikes
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The euro has reached a nine-month high against the US dollar. The performance of the euro comes amid aggressive interest rate hikes in Europe. There are speculations that the European Central Bank will continue to adopt aggressive interest rate hikes while the Federal Reserve shows signs of easing the hikes.
Euro hits a nine-month high as ECB continues with its hawkish stance
The euro hit a high of $1.0927 after breaking the previous peak of 41.08875. The euro is trading at its highest level since April 2022. The euro has gained by 0.2% against the dollar at the time of writing to trade at $0.0878.
The positive performance of the euro is being supported by the policies adopted by the European Central Bank. The ECB governing council, Klaas Knot, and Peter Kazimir have been at the forefront of advocating for a tighter monetary policy. The two supported additional hikes of 50 basis points
A survey conducted by Reuters involving different analysts also supported an interest rate hike of 50 basis points during the ECB’s next two meetings. The analysts advocate for the rates to finally peak at 3.25%, a significant increase from the current rate of 2%.
The easing fears of a possible recession also support the euro’s performance. Natural gas prices have also been dropping significantly. According to the head of currency strategy at Rabobank, Jane Foley, there was increased confidence about the economic outlook. Foley also supported the likelihood of the ECB carrying on with the aggressive interest rate hikes.
Interest rate hikes in the US
The global financial markets are also awaiting the Fed’s decision towards the end of this month regarding interest rates. The Fed is expected to move the rates by 50 basis points in the next FOMC meeting, which will see the rates peaking at 4.75% to 5% from the current 4.25% to 4.50%.
Investors expect an around 50 basis point hike during the second half of 2022 amid positive economic data such as easing inflation, housing, and consumer spending. A survey on economic activity conducted in January showed improvement in Europe amid declining energy costs in the continent compared to the United States.
According to recent PMI surveys, some analysts believe the US has lost its leadership position in global growth. With the inflation data in the US declining at a faster rate than the projections of the Federal Reserve, there was a likelihood that the US dollar could continue losing more value this year. This indicates that the euro could be in for more gains.
