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Wednesday, March 29, 2023

Euro hit 9-month high on ECB rate hike signals

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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%.

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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.

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 markets rose on Monday, in a session in which technology companies led the gainsas optimism about the possibility of the euro zone economy avoiding a deep recession overshadowed the hawkish statements of the authorities of the European Central Bank (ECB).

The pan-European STOXX 600 index gained 0.6%. In the previous session, the index had posted its first weekly decline of the year, on jitters over the earnings season and upcoming interest rate decisions by major central banks, including the ECB.

The technology sector improved 2.3%, in line with its US peer, boosted by shares in semiconductor companies such as ASML Holding and Infineon Technologies.

The STOXX 600 touched last week a maximum of nine monthsas the mild European winter and China’s abandonment of its strict rules against Covid-19 encouraged the outlook for the European economy.

China-exposed luxury companies such as LVMH and Kering rose between 0.8% and 1.7%while rate-sensitive eurozone banks added 0.8%.

Despite signs of slowing inflation in the euro area, ECB policy makers maintained an aggressive stance. Klaas Knot and Peter Kazimir, members of the bank’s Governing Council, supported the idea of ​​two more rate hikes of 50 basis points.

Investors will be looking for more clues about the central bank’s tightening plans when ECB President Christine Lagarde speaks later in the day.

With earnings season underway, investors are waiting to see if the results will continue to support the recent rally in the markets. Fourth-quarter earnings for STOXX 600 companies are forecast to have grown 10.7% year-on-year, the slowest rate in two yearsaccording to Refinitiv data

Source: Ambito

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