Euro rises against dollar after positive forecasts from ECB

Euro rises against dollar after positive forecasts from ECB

The euro rallied against the dollar on Thursday as the release of minutes from the European Central Bank's April meeting showing inflation concerns prompted dovish members of the central bank to support support a quarter percentage point rate hike as soon as July.

EUR/USD rose 1% to $1.0585.

"Net asset purchases should be ended as soon as possible, opening the door to a first rate hike shortly thereafter," the minutes of the ECB's April 14 meeting showed on Thursday. "The criteria for a rate hike have been clearly met."

The ECB in April decided to delay its decision on whether to end asset purchases in June, preferring to wait for new economic data to arrive, especially on inflation. But the data collected since then raised some concerns by the ECB that inflation, particularly wage inflation, could persist if not addressed through policy tightening.

“Since that [April meeting], some of the more dovish ECB Council members seem to have changed their mind,” Commerzbank said. “In recent days, these members have signaled support for the first rate hike in July, after deciding to stop buying net assets at the June meeting.”

While there is still uncertainty about the pace of monetary policy tightening, the minutes of the ECB's monetary policy meeting show that "an increasing number of policymakers favor a relatively rapid policy normalization." fast and sustainable,” said Daiwa Capital Markets.

A backdrop of growing expectations that the ECB will tighten more sharply and drive the euro up. However, if the ECB does not tighten as the market expected, the euro will depreciate against the dollar.

“We also believe that the markets are over-expecting the ECB tightening and expect the growth disparity (in Europe to be exacerbated by uncertainty between the EU and Russia on commodities) to be seen. more clearly in the summer,” ING said in a note earlier this week.

“With this in mind, we suspect that EUR/USD could start to decline towards 1.0650-1.0700, with a potential drop below 1.0500 in the near term,” ING added.

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