NEW YORK: The euro fell on Thursday as investors took profits from a brief surge in the currency after European Central Bank President Christine Lagarde said more interest rate hikes are needed to tame inflation.
The dollar was also boosted by worsening risk appetite as stocks fell.
The ECB raised interest rates for the fourth time in a row, although by less than at its last two meetings, pledged further hikes and laid out plans to drain cash from the financial system as part of its fight against runaway inflation.
Lagarde said that upside inflation risks remain, which necessitates more tightening.
“The outlook for inflation is rather hawkish for the ECB, whereas here in the US the rhetoric is that they are going to keep raising until they win the fight against inflation, but I think traders are becoming more convinced that the Fed is near the end of tightening,” said Edward Moya, senior market analyst at OANDA in New York.
The greenback weakened on Wednesday even after Fed Chair Jerome Powell adopted a hawkish tone on the need for more tightening even as the economy slips toward a possible recession.
“Lagarde was more hawkish than Powell yesterday,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
Thursday’s moves in the euro/dollar were likely “buy the rumor, sell the fact” around the ECB meeting, with the dollar also benefiting from the risk-off sentiment “that was prevailing before the ECB meeting,” Chandler said.
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