Euro Returns Above Dollar Parity as Traders Anticipate Big ECB Rate Hike

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The euro (EUR) reclaimed its footing above parity against the dollar (USD) on Tuesday as traders turned their focus to Germany’s inflation data, which should give indications of the likelihood of an aggressive interest rate hike decision by the European Central Bank (ECB).

At press time, the EUR/USD pair trades up by 0.32% today, after peaking at 1.0055. The EUR gained against the dollar on rare bets and from bullish bias from the previous day’s session. Commenting on the price dynamics around the euro, John Hardy, the head of FX strategy at Saxo Bank, noted that “It’s about the ECB being priced far more aggressively over the past few sessions, as well as a little bit of pressure coming off the natural gas prices.” Hardy further explained:

“It’s also noticeable we’ve seen a bit of magnetism around this parity level for euro/dollar, so many times these big round levels can become major sticking points.”

Euro Traders Foresee 0.75% ECB Rate Hike

There are increasing bets that the ECB could raise its rates by a 75 basis point hike in its next decision, after several ECB speakers at the recently concluded US Fed Jackson Hole symposium indicated support for a more aggressive rate hike.

As mentioned earlier, the German CPI will paint a clearer picture of how aggressive the ECB will be with its rates to combat rising inflation. Data from earlier today showed that the Spanish national consumer prices increased by 10.4% in August Year-on-Year (YoY), underachieving targets of 10.9%.

Euro traders will also focus on speeches from several ECB speakers later today, which could influence the near-term price dynamics in the market. Likewise, traders will keep their eyes on oil prices as the European nations race to fill up storage facilities ahead of winter.