Currencies: the euro rebounds, the ECB seems in a hurry to raise its rates

Posted 19 May, 2022

The euro rebounded strongly on Thursday, rising in the evening by 1.2% to $1.0593 between banks against the greenback, in reaction to the publication of the "Minutes" of the last ECB meeting. Europe's single currency hit $1.0607 at the day's high but still remains at a depressed level, close to its lows in more than 5 years.

In the minutes of the meeting of 13 and 14 April, the officials of the European Central Bank affirmed their desire to raise key rates quickly to curb the surge in inflation, which reached 7.4% in April on a year in the euro area.

“Some members considered it important to act without unnecessary delay,” added the ECB. “There was also a perceived risk that, unless the Governing Council signaled a faster process of policy normalization, inflation expectations would continue to rise.”

For its part, the dollar index relapsed on Thursday evening by 1.02% to 102.75 points against a basket of six reference currencies (the euro, the yen, the pound sterling, the Swiss franc, the Canadian dollar, and the Swedish krona). The greenback, however, remains not far from its highest levels for 20 years, supported by the Fed's desire to raise its key rates to at least 2% this year to curb inflation which has exceeded 8% in the United States since March.

Towards an ECB rate hike in July

These comments from the ECB are more specific than its press release published in April. At the end of this meeting, the institution maintained its monetary policy as it stood while confirming its intention to end its bond purchases on the markets in the third quarter. It had given no new indication on the timing of the tightening of its monetary policy, underlining the uncertainties linked to the war in Ukraine.

However, since that April meeting, virtually all ECB members who have spoken publicly have expressed support for an interest rate hike in July and several have called for the deposit rate (currently set at - 0.40%) to become positive again by the end of the year.

The euro had already jumped on Tuesday after comments by Klaas Knot, the president of the central bank of the Netherlands, who was the first to suggest a possible hike of half a point in interest rates as soon as the meeting of July if inflationary risks were to worsen.

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