The euro surged to a more than three-week high against the US dollar on Monday, as European Central Bank officials leaned toward more aggressive monetary tightening and the US dollar weakened against most major currencies except the Japanese yen.
The euro strengthened around 1.5% to $1.0198, its highest since Aug. 17, and rebounded from last week's 20-year low of $0.9862. At the time of writing, the Euro has strengthened 0.89% to trade at 1.0129.
According to Ane Foley, head of FX strategy at Rabobank, market conditions seem to have calmed down a bit with the ECB's hawkish comments giving an exaggerated perception. Bundesbank President Joachim Nagel said at the weekend that if consumer price expectations do not change then these aggressive measures will continue.
In addition, ECB policymakers see growing risks and they need to raise their main interest rate to 2% or more to curb inflation in the European zone.
Foley notes U.S. inflation data opportunities. which is lower later and this has led to an increase in stocks and risk markets.
The euro's strength was also seen strong against the pound sterling and it surged as high as 87.22 pence on Monday, the highest since February 2021. The US dollar index which measures the US dollar against six major currencies traded down 0.76% to trade at 107.915.
Investors take a cautious approach ahead of the U.S. CPI report. where it is used as a benchmark for the U.S. Federal Reserve. determine the interest rate. Fed officials continued their hawkish rhetoric on Friday ahead of the Fed meeting.
Fed Governor Christopher Waller said he supported a significant hike at the next meeting, while Fed President St. Louis James Bullard reiterated his call for a 75 basis point hike.
The US dollar was steady against the interest-sensitive Japanese yen, at 142.66 yen, down slightly from a 24-year high of 144.99 reached last week.
