The common currency soared against the US dollar today. The European Central Bank has increased its deposit rate by 350 basis points since July, reaching 3% overall. Officials aim to thwart runaway inflation. However, the ECB also clarified that future increases will depend on economic data. Refinitiv data showed that currency markets are pricing in two 25 basis point rate hikes by the European Central Bank for September.
Traders are focusing on policy decisions today, as fears about the impending crisis in the banking sector receded significantly. In Germany, new reports showed that inflation could fall considerably in March. Energy prices also fell. Investors are waiting for the preliminary inflation figure from Germany, due later today.
Meanwhile, Spain reported that consumer prices in the country rose 3.3% year-on-year this month. That’s the slowest pace from the one-year period through August 2021.
Goldman Sachs noted that the European Central Bank is completely focused on core inflation dynamics. Eurozone core inflation could rise to 5.72% in Friday’s release. On Wednesday, Isabel Schnabel, a member of the ECB board, declared that core inflation remains unchanged in the eurozone. She also added that the recent drop in energy costs may not reduce inflation as quickly as some analysts hope.
On Thursday, the euro rose 0.3% to $1.0880. The coin looked poised to end March with a gain of almost 3%. On the other hand, the dollar index plunged 0.2% to 102.38. With the banking crisis, concerns faded and investors turned to riskier currencies. The dollar could end this month down 2.5%. In addition, analysts contemplate that the Fed could pause its rate hikes to avoid an economic recession, especially after the collapse of its two regional banks. Such forecasts weigh on the dollar.
In Asia, the Japanese yen rose 0.3% to 132.46 to the dollar. However, the yen had fallen 1.5% in the previous session. It has been very volatile as the end of the Japanese fiscal year approaches.
What about emerging market currencies?
Asian currencies fluctuated on Thursday. The Thai baht added to its initial losses. The coin was shed 0.2% after surging higher for two straight days. Despite that, it looks like the baht will end March with a 2.5% monthly gain.
The Bank of Thailand raised interest rates by 25 basis points (bps) yesterday. Traders expected such an increase as the country is trying to reduce inflation. Meanwhile, the Philippine peso and Malaysian ringgit each fell 0.1%, while the South Korean won soared 0.3%. The Singapore dollar stayed the same.
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