Euro Rebounds to 1.16, Markets Increasingly Confident ECB Could Raise Interest Rates
The euro strengthened back to around US$1.16 at the end of a volatile week, rebounding from a more than seven-month low. The strengthening occurred after the European Central Bank (ECB) signaled a firmer stance on inflation, which has strengthened again due to the surge in oil and gas prices related to the Iran conflict.
On Thursday, the ECB held interest rates unchanged but raised its inflation projections and lowered its growth forecasts for the next few years, citing heightened uncertainty stemming from the Middle East conflict. This change in projections has led the market to believe the ECB may need to respond more quickly to price pressures, although the risk of weaker growth has also increased.
Several major financial institutions are now opening up scenarios for interest rate hikes starting in April. The market is said to have already priced in a June hike and assigns a probability of around 60% for a May move. ECB policymaker Joachim Nagel emphasized that a rate hike next month could occur if price pressures continue to rise, while Francois Villeroy de Galhau reiterated the central bank's commitment to acting decisively.
Source: Newsmaker.id
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