The Fed took an increasingly aggressive approach to monetary policy as inflation rose to its fastest pace in 40 years, while the ECB was more cautious.
The US central bank is expected to raise interest rates by 50 basis points and announce plans to reduce its balance sheet by $9 trillion when it concludes its two-day meeting on Wednesday.
Meanwhile, ECB Vice-President Luis de Guindos said in an interview with the central bank over the weekend that his Governing Council had not discussed “any pre-determined trajectory for rate hikes”. rate”. He added that a lot will depend on the macroeconomic data in June.
“Following the dovish comments from de Guindos over the weekend, we will be watching for the latest comments from Lagarde today,” said Jeremy Stretch, head of G10 FX strategy at CIBC.
Lagarde is expected to speak later today.
Money markets expect interest rates to rise by 90 basis points by the end of the year, with a first hike expected in July. [IRPR]
Concerns about inflation, growth and energy insecurity due to sanctions imposed on Russia after its invasion of Ukraine have caused the euro to fall 14% against the dollar in three months.
At 1100 GMT, the single currency was stable at $1.05040. It had fallen to $1.0470 on Thursday, its lowest level since January 2017.
“The euro appears to have found some support just above the 1.05 area which is helped today by a slightly softer US dollar,” said Jane Foley, head of FX strategy at Rabobank London. .
“The European Union’s energy security concerns remain precarious, suggesting that the euro is certainly not out of the woods yet,” she added.
Providing no support for the euro, data showed on Tuesday that unemployment in the euro zone continued to decline, hitting a new low record.
Stretch said he did not expect the data to have an impact on the ECB’s rate forecast or the euro.
The dollar also held steady at 103.6 against a basket of currencies, after hitting 103.48 on Thursday, its highest level since December 2002.
Although the odds are seen as low, some investors are watching for the possibility of a 75 basis point hike from the Fed or a faster pace of balance sheet reduction than currently expected.
In recent weeks, the US dollar has also benefited from safe-haven flows as COVID-19 restrictions in China have raised concerns about global growth.
The dollar hit 6.6880 against the Chinese yuan in offshore markets, its highest level since November 2020.
The Japanese yen held just above 20-year lows against the dollar hit on Thursday, as the Bank of Japan reinforced its commitment to ultra-low interest rates by promising to buy unlimited amounts daily. of bonds to defend its return objective.
The Japanese currency held steady at 130.10, after hitting 131.24 on Thursday, its lowest level since April 2002.