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Title: Euro at one-week highs as rate hike bets grow

Apr 21, 2022 03:50AM ET

By: AnalysisWatch

The euro surged to a one-week high on Thursday as market expectations solidified for a first rate hike by the European Central Bank as early as July.

Joachim Nagel, president of Germany's Bundesbank, echoed comments this week from his peers that the ECB could raise interest rates early in the third quarter. Another policymaker, Martins Kazaks, said this week that a July rate hike was "possible."

Against the U.S. dollar, the euro rose 0.4% to $1.0895, its highest level since April 14. The euro's rise was quite broad-based, as the currency posted gains against the yen, Swiss franc, and Norwegian krone.

For the euro, "it's all about the ECB's drumbeat for a July rate hike," said Kenneth Broux, foreign exchange strategist at Societe Generale in London.

Money markets are now expecting a 20 basis point rate hike from the ECB in July and cumulative increases of more than 70 basis points by the end of 2022, which would put benchmark rates above zero for the first time since 2013.

Political news from Europe also had a supportive effect. French President Emmanuel Macron cleared a key hurdle ahead of Sunday's runoff election with a combative performance in a televised debate against far-right candidate Marine Le Pen.

The Chinese yuan was the big loser in early London trading, with the offshore unit falling nearly half a percent to 6.47 yuan per dollar, its lowest level since September.

The Chinese currency was hit by a double whammy of slowing growth expectations and shrinking yield differentials between Chinese and U.S. government bonds.

The yield differential between 10-year Chinese and U.S. government bonds fell into negative territory on Wednesday for the first time since 2010.

A broader index of the U.S. dollar fell 0.4% to 99.97.

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