Euro rallies on potential rate hike, dollar extends slide

Published On: May 24, 2022Categories: Latest News1.3 min read

The euro was the big gainer, adding as much as 1.1% to $1.0687

The euro rallied on Monday after the European Central Bank president said policymakers would likely lift interest rates out of negative territory by September, while the dollar extended its recent slide.

A calmer mood on equity markets in European trading also pressured the dollar, which fell sharply last week but has been the go-to currency for investors this year when risk assets tumbled and worries about the economy and inflation jumped.

The euro was the big gainer, adding as much as 1.1% to $1.0687. It has now risen 3.3% since hitting a multi-year low of $1.0349 on May 13.

ECB President Christine Lagarde said in a blog post that the bank was likely to lift the euro area deposit rate out of negative territory by end-September and could raise it further if it saw inflation stabilising at 2%.

The euro’s rally came as the dollar fell broadly, with a sell-off that began accelerating last week.

We see this as just a temporary correction (in the U.S. dollar) for now. If we look at the main reasons why the dollar has been strengthening so much in recent months, we don’t think that fundamental story has changed significantly over the past week, said MUFG analyst Lee Hardman.

But in the very short term there is a risk that this correction lower could extend further, he added, pointing to a build-up in long dollar positions in recent weeks that leaves the market vulnerable.

The euro also rose 0.3% versus the Swiss franc to 1.0315 francs, undoing some of the franc’s gains since the Swiss National Bank chairman last week said policymakers were ready to act if inflation strengthened.

About the Author: Jonathan Adams

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