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© Reuters.
By Peter Nurse
Investing.com – The US dollar was little changed at the start of trading on Thursday in Europe, holding on to overnight gains on rising expectations that the Federal Reserve will further tighten monetary policy next month.
As of 08:00 AM ET (0800 GMT), the , which tracks the currency against a basket of six other major currencies, is nearly flat at 101.662, after rising 0.3% during trading on Wednesday.
The president of the Federal Reserve Bank of New York, , affirmed on Wednesday that inflation remains at problematic levels and that the US central bank will take measures to reduce it.
This came after the banking giant Morgan Stanley (NYSE:) posted a strong first quarter, joining several of its peers in beating Wall Street expectations and calming recent concerns about the state of the US banking sector.
Everything points to a final rate hike of 25 basis points in May, and then the debate will begin on whether the US central bank will keep rates unchanged for the rest of the year or start cutting towards the end of 2023, when the world’s largest economy begins to contract.
The prevailing cautious climate is likely to continue as we head into the next few weeks of crucial central bank meetings.
The situation is different in Europe, as data released on Wednesday showed that inflation remains a problem, particularly in the UK, suggesting more interest rate hikes are on the way.
Divergent strategies on both sides of the Atlantic have recently pushed sterling and the euro to multi-month highs.
The pair rises to 1.0956 this Thursday, falling 2.6% monthly in March, although with an annual increase of 7.5%.
Investors will also be awaiting the publication of the latest European Central Bank meeting later this day, looking for indications of the opinion of those responsible for monetary policy regarding the scope of future increases.
“Markets appear to have consolidated their views around a 25 basis point hike by both central banks in May, and less volatility in rate expectations could lead to a calmer currency environment,” the analysts note. from ING (AS:) in a note.
The pair is down 0.1% to the 1.2430 level, reversing strong gains posted on Wednesday after it showed the UK is the only Western European country with double-digit inflation in March.
Investors now expect the price to rise 25 basis points in May, before reaching 5% in September.
Elsewhere, the pair declines 0.1% to 0.6709, the rises to 134.72, while the falls 0.5% to 0.6169 after the lower-than-expected expected.
