Dollar up, Euro down as pair clash in fight against rising rates

Currency signs of the Japanese yen, euro and U.S. dollar are seen on a board outside a currency exchange office at Narita International Airport near Tokyo, Japan March 25, 2016. REUTERS /Yuya Shino

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  • Euro retreats after surging last week
  • Analysts say ECB shift is big deal for single currency
  • Dollar drops slightly, traders await Thursday CPI data

NEW YORK, Feb 7 (Reuters) – The dollar edged higher and the euro eased on Monday after European Central Bank President Christine Lagarde calmed market expectations of a rapid interest rate hike. interest that has pushed regional bond yields in Europe to multi-year highs.

There is no need to sharply tighten monetary policy in the eurozone as inflation is expected to come down and could stabilize around the ECB’s 2% target, Lagarde told a European Parliament hearing. Read more

The ECB last week opened the door to a rate hike later in 2022 as inflation risks grew, while data showing an unexpected jump in US jobs created in January also sparked speculation of a longer timeline. fast for Federal Reserve rate hikes.

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New expectations for both the Fed and the ECB pitted the dollar against the euro as to which one will take the upper hand. US consumer price data to be released on Thursday is poised to be a key determinant of the data points.

“The euro-dollar will be in a bit of a tussle between these two forces, but ultimately with the CPI in the US, we’re probably due for a bit more recovery in the dollar,” Kathy said. Lien, Managing Director of BK Asset Management.

A Reuters poll of economists showed they expected the year-on-year CPI to have climbed to 7.3% in January.

The dollar index rose 0.138%, with the euro falling 0.24% to $1.1418.

Last week the ECB moved the ball in a positive direction for the euro, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

“Now the focus has shifted to US inflation, which the market will use to determine whether the Fed will hike 25 basis points or 50 basis points next month,” Manimbo added.

Markets have now priced in a one-in-three chance that the Fed might hike 50 basis points in March, and a reasonable chance that rates will hit 1.5% by the end of the year. FEDWATCH

The European common currency hit its highest since mid-January on Friday, driven by the ECB’s hawkish turn.

Not everyone is convinced of the ECB’s hawkish leanings.

“We don’t think the ECB is bracing for a sudden acceleration in tightening. We still think the Fed is on track to be well ahead of the ECB, supporting the dollar,” said Mark Haefele, chief investment officer at UBS. . Global Wealth Management.

Haefele said he expects the euro to fall to $1.10 by the end of the year and the dollar to gain against the Swiss franc to end the year at 0.98 francs. per dollar, against 0.92 currently.

The two-year US Treasury yield, which generally moves in line with interest rate expectations, fell 2.4 basis points to 1.298%.

The Japanese yen strengthened 0.06% against the greenback to 115.14 to the dollar, while the pound last traded at $1.3514, down 0.11% on the day.

Bitcoin rose 8.64% to $44,155.82, after jumping 11% on Friday night.

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Currency rates at 12:58 p.m. (5:58 p.m. GMT)

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Reporting by Herbert Lash; Additional reporting by Tommy Wilkes in London; Editing by Will Dunham, Frank Jack Daniel, Mark Heinrich and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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