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Monday, February 6, 2023

Euro hits 9-month highs after signs of ECB rate hike

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A Reuters poll of analysts also favored a 50 basis point rise in March and an eventual top of 3.25% from the current rate of 2%.

Meanwhile, futures have virtually ruled out any possibility of the Fed raising rates by 50 basis points next month and have steadily lowered the likely top of rates to a maximum range of 4.75% to 5.0%. , from 4.25% to 4.50% current.

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Investors are also expecting around 50 basis points of US rate cuts for the second half of the year, reflecting weaker data on inflation, consumer spending and housing.

The market expects January economic activity surveys, due out this week, to show more improvement in Europe, partly thanks to falling energy costs, than in the United States.

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The dollar, meanwhile, weakened 0.2% against a basket of currencies, including the euro and sterling, trading at 101.73 and one step away from its eight-month low of 101.510.

The pound hit its highest level in seven months at $1.24475, then traded 0.1% higher at $1.2414. Meanwhile, the dollar was up 0.2% at 129.875 yen, after trading in a range of 127.22-131.58 last week.

European markets

European stock indices rose slightly in early trading on Monday, supported by hopes that inflation may have peaked, as markets lowered expectations for future Federal Reserve rate hikes.

Liquidity was tight during the Asian session as markets in China, Hong Kong, Singapore, Malaysia, South Korea and Taiwan were closed for the Lunar New Year holiday.

Signs of moderation in inflation, falling commodity prices and easing of Chinese restrictions due to COVID-19 have raised hopes that a potential global economic downturn may not be as severe as feared.

Money markets estimate a 98% chance that the Federal Reserve will raise rates by 25 basis points next month, and have progressively lowered the probable maximum to a range of between 4.75% and 5.0%, from 4.25% to 4.50% current.

Investors are awaiting preliminary PMI data from the euro zone and the United States on Tuesday, which is expected to show less severe economic contractions than the previous month, according to analysts polled by Reuters. The data is expected to show more improvements in Europe than in the United States.

Source: Ambito

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