Euro Claims Multi-Week Rally Against Other Currencies Amid Growing Expectations of an ECB Rate Hike

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The euro recorded a spike against all major currencies in the European session on Thursday, following strengthening expectations of an interest rate hike by the European Central Bank in July.

Bundesbank President Joachim Nagel was the latest policymaker to assert that the ECB will raise its interest rate at the start of Q3 2022. Another ECB policymaker Martins Kazaks asserted earlier this week that a rate hike in July was likely.

The euro currently trades up by 0.61% against the US dollar after tapping a two-week high at 1.0936 earlier today. As mentioned earlier, the euro’s rally occurred across the board, as it snagged points against other top currencies.

Commenting on the latest EUR price action, FX strategist at Societe Generale Kenneth Broux noted that the “euro is all about ECB drumbeat for a July hike.”

Analysts are betting on a 20 basis points (bps) rate hike from the ECB in July and over 70 basis points cumulatively by the end of this year, as money markets price in this hawkish scenario. If the ECB goes through with this, it would be the first time the benchmark interest rates surpassed zero since 2013.

Euro Supported by Political Development in France

Meanwhile, the latest political news from France gave the single currency a bump. Emmanuel Macron, the president of France, has scaled a crucial barrier ahead of the runoff presidential election on Sunday after an inspiring performance in a TV debate against his far-right contender Marine Le Pen.

In other news, the Chinese yuan had the worst currency performance as of the early London session today, with its offshore unit plunging by 0.5% to 6.47 to the dollar, its lowest point since September 2021.

The yuan struggled with slowing growth expectations on one end and declining yield differentials between Chinese and US government debt on the other. Notably, the yield differential between 10-year Chinese and US government debt dropped into negative territory on Wednesday, it’s first since 2010.