The euro was told by the European Central Bank on Thursday that it would end its stimulus package in the third quarter and left the door open for an interest rate hike before the end of 2022 to keep rising inflation in check.
Speaking at a news conference, ECB President Christine Lagarde warned that inflation risks were heightened after Russia's invasion of Ukraine and saw the euro area's harmonized index of consumer prices now rise by 5.1% in 2022 This was a sharp increase from the expected 3.2%. In December.
At 1408 GMT, the euro was trading at $1.1060, down 0.16% after jumping 1.6% on Wednesday, its best day in nearly six years.
The ECB's flamboyant tone and its acceptance that economic growth would be largely affected by the conflict in Ukraine, while fueling inflation, led to a sharp rise in yields of euro area government bonds.
Investors slashed prices in further monetary tightness with a total of 45 basis points now expected to be added to the bank's key interest rate by the end of the year.
Gavin Friend, a senior market strategist at National Australia Bank, commented, "Markets believe the ECB is now closer to ending QE (quantitative easing) and rates are rising higher than before."
The common currency on Wednesday benefited from a risk-averse change in sentiment that lifted equity markets and bond yields and optimism about diplomatic efforts for the Kremlin to refer to a "special operation" to disarm Ukraine. A fall in oil prices was observed between The euro is widely seen as a gauge of Europe's biggest security crisis since 1945 and touched a 22-month low of $1.0804 earlier this week, giving investors a big impact on European growth. was expected.
In the United States, a massive 7.9% increase in consumer prices in February was no surprise and the dollar index rose only 0.10%.
While the Federal Reserve is widely expected to raise its benchmark overnight interest rate by a quarter percentage point next week, growing calls for a bigger half percentage point hike before the war have calmed down.
The ECB had hitherto seen other major central banks such as the Federal Reserve and the Bank of England in a tight cycle following the pandemic, which has weighed on the euro.
Recent speculation that EU leaders are considering issuing joint bonds for energy and defense spending, however, has given the currency a boost. The EU summit will begin later today in Versailles, west of Paris.
Bitcoin fell nearly 7%, eroding most of the gains made the previous day after US President Joe Biden's executive order requiring the government to prepare reports on the currency's future sparked fears about an immediate regulatory crackdown on the cryptocurrency in the market. Was.