Currencies: sharp rebound in the euro after statements by a member of the ECB

(Boursier.com) — The euro rebounded vigorously on Tuesday, up 1.09% to $1.0545 between banks against the greenback. The single currency, which recently fell below $1.04, the lowest since 2017, is supported by the words of Klaas Knot, the president of the central bank of the Netherlands. This member of the Governing Council of the European Central Bank has become the first eurozone official to suggest a possible half-point hike in interest rates if inflation risks were to worsen, although it is currently supporting a more modest quarter-point tightening.

“The first interest rate hike is now anticipated for the monetary policy meeting on July 21 and that seems realistic to me,” Klaas Knot told Dutch television. The ECB should, however, leave the door open to a bigger rate hike if inflation data suggest over the next few months that inflation is “widespread or escalating”. “If that’s the case, a bigger increase shouldn’t be ruled out either… In that case, a logical next step would be a hike of half a percentage point,” the leader stressed.

Financial markets are currently pricing in a 97 basis point hike in the ECB’s deposit rate, currently pegged at -0.5%, by the end of the year, with the first hike expected in July. and the following at each of the institution’s other monetary policy meetings between now and the end of December. The ECB has ruled out a rate hike as long as net bond purchases continue, ruling out the possibility of a change at its next Governing Council meeting on June 9.

Below $1.04 yesterday, the European currency, weighed down by the consequences of the war in Ukraine, posted a loss of more than 5% since April 1. The greenback has acted as a safe haven in recent weeks in an increasingly unstable economic and geopolitical environment. Against the single currency, it is supported by the lower exposure of the United States to the Ukrainian crisis compared to the euro zone, but above all by the increasingly favorable interest rate differential in the United States.