On Thursday, the euro climbed to an almost one-week high against the US dollar, after the officials of the European Central Bank made a number of hawkish comments. This boosted the possibility of an increase in interest rates soon in the euro zone. The single European currency also received a boost due to the possibility that Emmanuel Macron, the French President, would emerge victorious in his re-election on Sunday. The president of the Bundesbank in Germany, Joachim Nagel, also joined other policymakers when he commented that the beginning of the third quarter could see the ECB hike up interest rates.
After the meeting of the ECB last Thursday, the rate hike bets eased significantly in money markets, but now they are pricing in an increase in interest rates in July and believe there would be a great deal of tightening by the end of the year. This would mean that benchmark interest rates would actually surpass zero, which has not happened since 2013. Currency strategists said that the euro could reach a value of $1.10, if the next few weeks see constant hawkish comments from officials of the ECB. However, the euro could also decline, depending on the divergence in monetary policy of the Fed and the ECB.
The political news in Europe also lent its support, as the French President was able to overcome a prominent hurdle in his re-election bid. He had a TV debate with Marine Le Pen, the far-right candidate, and was able to deliver a strong performance. With just four days remaining, almost 59% of those watching the debate declared Macron to be more convincing. The euro had climbed to $1.093 during mid-morning trading, which brought it to its highest level after April 11. Meanwhile, sterling declined against the euro to reach a low of 10 days.
This was because investors are focusing more on the policy decisions that would be taken by the Bank of England and other central banks. As for the rise of the euro, it appeared to be quite broad, as the currency went up against the Norwegian crown, the Swiss franc and also the Japanese yen. But, analysts have said that the euro could encounter higher pressure should the US Federal Reserve decide to increase their interest rates quicker than expectations. Later on Thursday, Jerome Powell, the Chairman of the Fed, Christine Lagarde, the President of the ECB and Andrew Bailey, the Governor of the Bank of England, are expected to speak at an IMF panel.