Dollar Declines As Hope Of ECB Rate Hike Lifts Euro

On Tuesday, the US dollar declined against the euro for the third consecutive session, after a report from Reuters about the policymakers of the European Central Bank (ECB). According to the report, the officials are considering hiking the interest rates by 50 basis points, as compared to the 25 basis points predicted earlier, in their meeting on Thursday for combating the soaring inflation.

Banking decisions

Last week, the euro had hit sub-parity levels against the euro, but the rebound helped it put a distance. It coincided with an easing in expectations of a 100 basis points interest rate hike by the US Federal Reserve later this month. These falling expectations of a super-sized hike knocked the greenback, which is considered a safe-haven asset and benefits from interest rate hikes.

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Market analysts said that it was apparent that central bank policy was playing a key role in the movement of currencies. They also said that the change in outlook for the trans-Atlantic monetary policy was giving a boost to the euro and it was a good thing for the currency.

Euro rises

The euro recorded gains of about 1.2% for the day, climbing to a value of $1.0269 and this is the strongest the single currency has been since July 6th. This is because markets were pricing in a 60% possibility of the ECB hiking the interest rates by 50 basis points in this week’s meeting, while they had been 25% on Monday.

Investors are also focusing on the political turmoil that seems to be taking place in Italy, as the government is unsure if Mario Draghi will continue to serve as the country’s prime minister or not. Analysts said that if Draghi was to go, it would result in weakness for the euro because it would destabilize Rome.

However, it is important to note that analysts are not willing to take a bullish stance where the euro is concerned because of the ongoing worries about natural gas supplies. Other concerns that are keeping them at bay are the extent of hawkishness of the ECB and the impact on the economy. They said that the bounce in the euro was not likely to last for long.

Other currencies

The dollar recorded a fall of 0.6% against a basket of its peers, which brought it to 106.71. This marked the third consecutive session of losses for the currency. As for the dollar index, it was close to a high of two decades that it had reached in the previous week at 109.29.

There was also a 1.3% gain in the Australian dollar and it rose to $0.6903 after the policymakers of the Reserve Bank of Australia said that they believed more tightening would be needed in the monetary policy, even after the recent hikes.

A 0.44% increase was also recorded in the British pound, as it climbed to $1.2006, thanks to the wider rebound against the US dollar.

The cryptocurrency market might also be seeing its fortunes change, as there was an 8% gain recorded in the price of bitcoin, which took it to $23,436.25.

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