Joice Alves

LONDON (Reuters – After hitting a 20 month low last week the euro rose on Wednesday. The rise was due to markets waiting for euro zone inflation data that would give clues about the European Central Bank’s next move.

The euro is under severe pressure. It has fallen 8% over the past three months. This was despite expectations that the ECB would be the next central bank to increase interest rates.

The euro rose by 0.14% at 9:00 GMT to $1.12865 ahead of European Union inflation data at 1000 GMT.

Investors were concerned by the strong inflation numbers in Germany this week, which led to them speculating about whether the ECB could signal a quicker path for tightening policy.

Commerzbank head of foreign exchange Ulrich Leuchtmann said that today’s money market prices in an ECB increase in rate for the final quarter of 2018, but it’s too early to expect the euro to reflect this.

The short-term will be determined by what Christine Lagarde (ECB President) has to say tomorrow.

Leuchtmann said that “if the CPI in the Euro Zone today is high”, some market participants would expect that the ECB would have to sound hawkish on tomorrow.

The dollar rallied after hitting a 19-month peak last week. However, risk sentiment rose as U.S. Federal Reserve officials opposed to any potential rate rises in the coming year.

Fed officials spoke out to say they will raise interest rates in March, but were cautious about the future and expressed a willingness to explore other options given uncertain inflation prospects.

The dollar lost 0.11% against a basket currency, falling to $96.162 for the third consecutive day. A rally in global equity markets has ruined some of its safety-haven appeal.

Sterling rose to an all-time high of $9.3533, up 0.5% from the previous day.

The expected rise in base rates by the Bank of England of 25 basis points to 0.5% Thursday has been fully anticipated by investors.