September 25, 2023

Dollar Rises and Euro Falls, as Lagarde Keeps Options for July Policy Open

On Tuesday, the US dollar rose, but the euro was holding below the $1.06 mark, as the President of the European Central Bank (ECB), Christine Lagarde, did not offer any insight into the policy outlook of the central bank.

No clarification

It is expected that the ECB would follow in the footsteps of its global peers in July when it will increase interest rates for trying to stem the soaring inflation. However, economists are divided on how much a hike can be expected. The president of the central bank said that they would hike gradually, but would take decisive action if there is any deterioration in inflation in the medium-term. The euro was held below the $1.06 value after the ECB president spoke.

Market analysts said that it is a tough position for the ECB because they were expecting to see more slowing than any of the other central banks. The problem for the banking institution is that there is a limitation inherent in how much it will be able to do, as opposed to others like the US Federal Reserve. This is because of the possibility of fragmentation that is happening in the eurozone and the ongoing war between Russia and Ukraine.

Expected rate hikes

Two weeks ago, money markets had priced in rate hikes of about 280 basis points by mid-2023, but that has now been changed to 238 basis points. This month, the US dollar index had managed to reach 105.79, which was a high in two decades. However, it has come down since then. The last value it was trading at was a rise of 0.462% at 104.440.

John Williams, the President of the US Federal Reserve Bank said on Tuesday that interest rates should be between the range of 3% and 3.5% by the end of 2022, but added that he did not expect an economic recession.

Currency movements

In other currency news, there was a rise in the Australian dollar and the Canadian dollar by 0.13% and 0.21%, respectively because of an increase in oil prices. There has been a 10% increase in oil prices in less than a week because of worries about supply constraints. The price of Brent crude is currently at just $117 per barrel.

Currency strategists said that the Canadian dollar and the Norwegian crown were getting a boost thanks to oil, while the euro was facing some resistance at the 1.06 level. There was a rise in the offshore Chinese yuan after China announced that it was slashing the quarantine requirement time for international travelers by half.

There was a 0.28% rise in bitcoin in the cryptocurrency market, as it reached a value of $20,956.91. Earlier this month, the world’s first cryptocurrency had dropped to a low of $17,588.88, which points to the arrival of yet another crypto winter.

Elsewhere, the pound was holding steady against the US dollar, despite the uncertain political environment in Britain and the expected post-Brexit issues due to the Northern Ireland protocol.

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