FOREX-Euro near 2-week high, awaits ECB and Nordstream clarity. – Rayrice Forex News

FOREX-Euro near 2-week high, awaits ECB and Nordstream clarity.

(Updates throughout, changes online, dateline)

By Sujata Rao

London, July 20, 2010: The euro, which has hit a two-week high against the dollar, is expected to raise higher ECB interest rates this week than previously expected. Maintenance.

Both events – the European Central Bank (ECB) meeting and the reopening of the Nord Stream 1 corridor after a 10-day shutdown – are on Thursday, leaving markets on tenterhooks.

But the euro benefited from the news that the ECB was considering a 50-basis interest rate hike, previously marked by 25 bps.

On Tuesday, the report cited two sources that helped the euro clock its biggest daily gain in a month. On Wednesday, the currency was up 0.5% to $1.02730, its highest since early June, before easing off those levels.

Sterling rose 0.25% to 85.4 pence.

Peter Kinsella, global head of FX strategy at Wealth, said: “The talk of 50 bps is correct and it all depends on what the ECB does in terms of the (monetary policy) transmission protection mechanism and if it increases faster than that.” Manager UBP.

He is referring to the ECB’s so-called anti-disruption tool to protect Italy and other weak eurozone countries from high borrowing costs. The ECB will present these plans in detail at Thursday’s meeting.

On Nord Stream, Reuters reports that supplies will resume on time, albeit below capacity.

But the European Union will detail energy contingency plans later on Wednesday, fueling fears that the eurozone economy is heading for an energy-driven recession.

The move will push short-term euro-dollar implied volatility, a measure of expected volatility, to 14 percent. It touched a high of over 14.6 percent on Tuesday, March 2020.

The prospect of a more hawkish ECB, alongside aggressive policy tightening expectations from several countries, is weighing on the dollar, which is 2.5% below last week’s 20-year peak.

Against a basket of major currencies in the dollar index, the greenback was flat around 106.6 on the day.

Markets are aligning expectations for a 100 bps US interest rate hike next week and now see a 23% chance of such a move after policy makers pour cold water.

Meanwhile, following a hawkish message from July’s policy meeting, Reserve Bank of Australia Governor Philip Lowe indicated interest rates could at least double from current levels. .

That sent the Aussie to a three-week high of $0.6927.

However, China bought the image of a hawkish central bank by keeping benchmark lending rates on hold. That pushed the offshore yuan down 0.2% to 6.76 per dollar.

As for the euro, many warn that a 50 bps rate hike may not do much, with other developed economies moving at 75 bps and even 100 bps.

HSBC strategist Dominic Bunning told clients: “A 50bps hike doesn’t look too brutal in comparison and we’ve seen the New Zealand dollar and Swedish krona struggle (central banks) after both moved 50bps in recent meetings.”

According to UBP’s Kinsella assessment, the euro was cheap and the dollar expensive, indicating room for a reversal. But he said it was an ongoing “waiting game with three big risks: gas shutdowns, China’s zero-covid policy and whether the world can avoid recession.”

These issues are proportionately “the dollar imposes a certain risk premium,” he added.

The Bank of Japan is expected to continue its ambivalent stance at Thursday’s meeting. That outlook kept the yen at 138.2 to the dollar, not far from 24-year highs.

(Additional reporting by Ray Wee in Singapore and Alun John in Hong Kong; Editing by Bradley Perrett)

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