Dollar Edges Lower Vs Euro on ECB Rate Hike Bets

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On January 23, the dollar fell against the euro, at one time reaching a new 9-month low, as the common currency found support in remarks made by European Central Bank officials that hinted at further increases in jumbo interest rates in Europe. The euro traded at its highest level since April of last year, reaching a high of $1.0927, before losses were scaled back and gains were maintained at $1.08605.

Members of the European Central Bank (ECB) governing council Klaas Knot and Peter Kazimir made remarks that supported two additional 50 basis point hikes at meetings in February and March, which contributed to the euro's early gains. ECB President Christine Lagarde reiterated much of the bank's most recent policy guidance on Monday, saying that the central bank will maintain raising interest rates fast to control the inflation that is still far too high. A Reuters survey of analysts also supported rate increases of 50 basis points at the following two sessions and a rated peak of 3.25% over the long term from the present rate of 2%. The Federal Reserve and the European Central Bank both have monetary policy meetings scheduled for next week, so major currency pairs were within reasonable ranges on Monday.

Jane Foley, head of the currency strategy at Rabobank, said that a decrease in natural gas prices and a reduction of recession fears were also helping the euro. Following last week's wild swings between 127.22 and 131.58, the dollar has climbed against the yen as the Bank of Japan (BOJ) refused to shift from its ultra-easy bond control policy in the face of market pressure. The dollar is now up 0.83% at 130.67 yen.