News Tech: The euro was on track Friday for its best week against the dollar since the COVID-19 pandemic hit, after the European Central Bank (ECB) turned hawkish to markets. school. Rising inflation in many global economies forced central banks to tighten monetary policy that has been significantly eased to help consumers and businesses weather the financial blow of the pandemic. The ECB has been against the tide. But on Thursday, although interest rates remained negative, President Christine Lagarde acknowledged rising inflation risks and opened the door to a possible rate hike later this year.
The strength of the euro is reflected in the weakening of the dollar index – as it outperformed the greenback against six major rivals, including the euro. The dollar index is tracking a weekly drop of around 2%, its worst performance since the pandemic. The last time was 95,327. US jobs data is due later on Friday, which could give investors a clue as to how quickly the Federal Reserve will tighten policy. Markets are currently pricing in up to five US rate hikes this year.
“The fact that the ECB has now signaled a more urgent path to raise rates for the first time in a decade is… has disruptive implications,” Deutsche Bank currency analysts said in a note. “Europe has lived with negative rates for almost a decade… When the ECB signals that this may change, that matters. It will take a long time to feel the full impact and we should expect a few surprises along the way”. The euro has gained three cents against the dollar this week to just under $1.15 – its best weekly gain since March 2020. It is up 0.2% on the day at 1.14565 dollars.
The pound is also among the big currency moves this week after the Bank of England raised interest rates to 0.5% on Thursday – marking the central bank’s first consecutive increase since 2004. The pound is on track to add 1% weekly. against the dollar, although it lost ground on Friday and is trading just under $1.36. A safe-haven currency, the Japanese yen was largely unchanged that day at 115,020 yen against the dollar.