Euro hits six-month high on hawkish ECB, then drops

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NEW YORK — The euro hit a six-month

high reached on Thursday after European Central Bank President

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Christine Lagarde said more rate hikes are needed to tame

inflation, before falling in choppy trading, a day after the

U.S. Federal Reserve signaled more increases to borrowing cost.

The ECB raised interest rates for the fourth time in a row,

although by less than at its last two meetings, pledged further

hikes and laid out plans to drain cash from the financial system

as part of its fight against runaway inflation.

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Lagarde said that upside inflation risks remain, which

necessitates more tightening.

“The outlook for inflation is rather hawkish for the ECB

whereas here in the U.S. the rhetoric is that they are going to

keep raising until they win the fight against inflation, but I

think traders are becoming more convinced that the Fed is near

the end of tightening,” said Edward Moya, senior market analyst

at OANDA in New York.

The greenback weakened on Wednesday even after Fed Chair

Jerome Powell adopted a hawkish tone on the need for more

tightening even as the economy slips towards a possible

recession.

“Investors are going to be convinced for at least the next

month that inflation is going to continue to come down,” said

Moya. That said, “interest rate differentials will remain in the

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dollar’s favor so I think that should give some underlying

support.”

The euro reached $1.0737, the highest since June

9, before falling back to $1.0642, down 0.38% on the day. The

dollar index against a basket of currencies was up 0.70%

on the day at 104.37.

The greenback briefly pared gains after data on Thursday

showed that U.S. retail sales fell more than expected in

November, likely payback after surging in the prior month, while

the labor market remains tight, with the number of Americans

filing for unemployment benefits declining last week.

A separate report showed that manufacturing activity in the

U.S. mid-Atlantic region contracted for a fourth straight month

in December, but factory operators reported a brighter outlook

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and said inflation pressures were easing notably.

Sterling was lower on the day after the Bank of England

raised its key interest rate to 3.5% from 3% and indicated that

more hikes were likely.

It was last down 1.49% at $1.2243.

The Norwegian krone was lower on the day after Norway’s

central bank raised its benchmark interest rate by 25 basis

points to a 13-year high of 2.75% on Thursday, as expected by

economists, and said it will “most likely” hike again in the

first quarter of 2023 as inflation remains above its target.

The dollar gained 1.07% against the Norwegian currency

to 9.8570.

The Swiss franc was also lower on the day after

Swiss National Bank Chairman Thomas Jordan said it was too early

to “sound the all-clear” on high inflation after the central

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bank hiked interest rates again on Thursday and hinted further

increases were still possible.

The SNB raised its policy interest rate by 50 basis points

to 1% – the central bank’s third hike this year as it stepped up

its campaign to dampen the rise in prices.

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Currency bid prices at 10:25AM (1525 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.3700 103.6600 +0.70% 9.102% +104.4100 +103.5300

Euro/Dollar $1.0642 $1.0683 -0.38% -6.39% +$1.0737 +$1.0605

Dollar/Yen 137.4750 135.4800 +1.44% +19.38% +137.4800 +135.2400

Euro/Yen 146.29 144.68 +1.11% +12.25% +146.6100 +144.3100

Dollar/Swiss 0.9284 0.9244 +0.46% +1.81% +0.9303 +0.9232

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Sterling/Dollar $1.2243 $1.2428 -1.49% -9.47% +$1.2426 +$1.2240

Dollar/Canadian 1.3643 1.3543 +0.75% +7.91% +1.3644 +1.3541

Aussie/Dollar $0.6714 $0.6864 -2.19% -7.64% +$0.6870 +$0.6711

Euro/Swiss 0.9880 0.9874 +0.06% -4.72% +0.9916 +0.9840

Euro/Sterling 0.8691 0.8594 +1.13% +3.46% +0.8708 +0.8592

NZ $0.6358 $0.6460 -1.56% -7.09% +$0.6463 +$0.6357

Dollar/Dollar

Dollar/Norway 9.8570 9.7280 +1.07% +11.61% +9.8570 +9.7465

Euro/Norway 10.4882 10.3710 +1.13% +4.75% +10.5011 +10.3783

Dollar/Sweden 10.3214 10.1531 +1.18% +14.45% +10.3218 +10.1599

Euro/Sweden 10.9802 10.8520 +1.18% +7.34% +10.9859 +10.8532

(Editing by Nick Zieminski)