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After ECB suppression, euro stabilizes as dollar awaits US CPI

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News Tech: The euro steadied on Wednesday from a three-week high after European Central Bank President Christine Lagarde cut bets on aggressive rate hikes. The flat dollar, a day before the release of consumer price data in the United States could provide fresh clues about the pace of monetary tightening by the Federal Reserve. A more hawkish tone from the ECB and the Fed last week caught markets off-guard and sent eurozone and US debt yields higher as the odds rose that it could accelerate. and higher than expected.

“We view these types of moves as short-term volatility, although profitable if played well,” said Jens Nærvig Pedersen, head of FX and rate strategy analysis at Danske Bank. . two weeks. “We expect the data (on US inflation) to support expectations of Fed assertiveness,” he said, adding that interest rate hike expectations should support a stronger US dollar in the months ahead. coming in the next few quarters. The market is pricing in a more than 70% chance of a 25bp Fed hike and a nearly 30% chance of a 50bp hike when policymakers meet in March, according to the CME FedWatch tool of the CME.

However, on Monday Lagarde said policy tightening was unnecessary, trying to assuage rising expectations of positive action after first signaling last week that a rate hike is likely for the year. Now it’s entirely possible. The euro rose 0.1% to $1.1425 by 08:50 GMT, after gradually declining from Friday’s high of $1.1483 when touching its highest since Jan. 1. 14. The Dollar=USD index, which measures the greenback against six major currencies, was also little changed, falling 0.1% to 95.504, having bounced off a 2.5-week low of 95.136 on Friday. It hit its highest level since July 2020 at 97,441 late last month.

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“The release of US CPI tomorrow will help determine whether the Fed starts at 25 basis points or 50 basis points in March,” ING strategists told clients. Economists polled by Reuters expect US data on Thursday to show consumer prices rising 7.3% year-on-year in January.

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