Joice Alves

LONDON (Reuters – On Tuesday, the euro was close to a five year low against the U.S. Dollar. The Federal Reserve expects to increase rates this week. Traders wait to hear from Christine Lagarde of the European Central Bank about her monetary policy plans.

As inflation rose at an unprecedented rate in the past 40 years, both Fed and ECB have taken a more aggressive stance on monetary policy.

As the two-day ends, Wednesday’s meeting of the U.S. central banks will see it raise interest rates 50 basis points. It also plans to decrease its balance sheet by $9 trillion.

Luis de Guindos, Vice President of the ECB, stated in an interview that was published by the bank over the weekend that the central bank had not discussed any “predetermined path” for rate increases. He also said that much will be dependent on the June macroeconomic data.

“After de Guindos’s dovish remarks over the weekend,” stated Jeremy Stretch of CIBC, Head of G10 FX Strategy.

Lagarde is scheduled to speak at the end of the day.

Interest rate rises are expected to increase by 90 basis points according to the money market, the first one being in July. [IRPR]

In three months, the euro has fallen 14% against the dollar due to concerns about growth, inflation and energy security following Russia’s invasion of Ukraine.

The single currency stood at $1.05040 at 1100 GMT. The currency had declined to $1.0470 Thursday. This was its lowest point since January 2017.

Jane Foley from Rabobank, London, said that the euro appeared to be finding support at just above 1.05 which is supported today by a slightly softer U.S. Dollar.

“The European Union’s energy security issues remain precarious suggesting that the euro is certainly not out of the woods yet,” she added. 

The data on Tuesday indicated that unemployment in the eurozone continued to decline, this was despite no assistance from the European Central Bank.

Stretch indicated that he was not expecting the data’s impact to have any effect on the ECB’s rates expectations, nor on the Euro.

Also, the dollar was at 103.6 against a basket currency, having reached 103.48 on Wednesday, its highest point since December 2002.

Although the odds are low, investors continue to be interested in the Fed’s potential 75-basis point rise or faster balance sheet reduction than is currently anticipated.

Over the past week, U.S. dollars have also benefitted from safe-haven flow as COVID-19 China’s restrictions on China has raised concern about global economic growth.

In offshore markets, the dollar reached 6.68808, its highest point since November 2020.

Japanese yen was just below 20-year lows against dollar on Thursday. The Bank of Japan increased its resolve to maintain ultra-low interest rates by promising to purchase unlimited bonds each day to protect its yield target.

Last Thursday’s Japanese currency hit 130.10 after it reached 131.24. It was the lowest since April 2002.