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Euro stumbles amid moderating ECB rate hike bets

currency-newsEuro stumbles amid moderating ECB rate hike bets
The euro trended lower on Tuesday amidst a repricing of European Central Bank (ECB) rate hike bets.

Meanwhile, the pound is trading in a narrow range so far this morning, with GBP/EUR stable at €1.1876 and GBP/USD flat at $1.3552. GBP/CAD is rangebound at C$1.7221, while GBP/AUD and GBP/NZD hold steady at AU$1.8944 and NZ$2.0364, respectively.

Looking ahead, the main catalysts of movement in the currency market today could be speeches from Bank of England and Federal Reserve policymakers.
 

What’s been happening?

The euro was placed on the defensive through yesterday’s session as EUR investors reassessed their bets for a rate hike from the ECB later this year.

The odds of a hike by the end of 2022 shot higher following a surprisingly hawkish turn from ECB President Christine Lagarde last week.

However, Lagarde appeared to make some effort towards cooling these expectations as she appeared before the EU parliament earlier this week.

The downturn in the euro was also exacerbated by the strengthening of the US dollar on Tuesday.

USD exchange rates rose in tandem with US Treasury yields as markets see the Federal Reserve raising interest rates by 50bps when it next meets in March.

At the same time, the pound was able to catch bids yesterday, despite fresh criticism directed towards Boris Johnson over his false claim about Sir Keir Starmer failing to prosecute Jimmy Savile, which dominated headlines and appearing to pile more pressure on the PM.
 

What’s coming up?

Kicking off today’s session was the publication of Germany’s latest balance of trade release.

December’s figures reported a surprise expansion in export growth, which might provide some modest support for the euro through today’s session.

GBP investors will look to a speech by Bank of England (BoE) chief economist Huw Pill for fresh impetus of movement this afternoon.

Pill was one of the five BoE policymakers to vote for a modest hike of 0.25% last week, so his outlook on policy may be slightly more cautious than some GBP investors would hope, potentially leading the pound to weaken today.

On the other side of the pond, a speech by Fed policymaker Loretta J. Mester will be in the spotlight for USD investors. Will a hawkish outlook from Mester bolter expectations for an aggressive March rate hike help boost the US dollar today?
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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