Euro hits 10 month-high on dollar, as central banks chart divergent courses
The euro sat at a 10-month high against the dollar on Thursday, ahead of a European Central Bank meeting at which markets expect a half-percentage point rate increase, a day after the U.S. Federal Reserve slowed the pace of its rises to 25 basis points.
The Fed also said it had turned a corner in the fight against inflation, its first explicit acknowledgment that price increases are slowing, underpinning market expectations that the end of the central bank’s rate-rise campaign is near and cuts could follow.
The dollar’s most dramatic overnight dive came after Fed Chair Jerome Powell told a post meeting news conference that “the disinflationary process has started”, although he also signalled that interest rates would continue rising and that cuts were not in the offing.
“It was very much a sort of relief … that there was nothing there to really seriously challenge the market’s prevailing view,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).
“(Powell) said that rates are going to have to be restrictive for some time, but that doesn’t dissuade the market from saying some time might be six months, rather than two years.”
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