August 16, 2022

Dollar Declines Against Euro With ECB Decision In Focus

On Wednesday, the US dollar fell against the euro, but the losses remained capped because traders were not willing to push for big moves ahead of a crucial meeting on Thursday of the European Central (ECB). The central bank will decide the monetary policy and is expected to hike interest rates, something it has not done for over a decade.

Euro rally

The expectations of a 50 basis points increase by the European Central Bank (ECB) have seen the euro rise by more than 3% in the previous four trading sessions combined. The common currency also got support from the report that the Russian gas pipeline shut down for maintenance would reopen according to the schedule and not extend closure, as had been feared previously.

Currency analysts said that the euro had received a boost yesterday on the possibility of the ECB hiking the interest rate by 50 basis points. However, the morning saw those expectations come down, especially as the energy crisis was once more making headlines in Europe.

The gas crisis

On Wednesday, the European Union informed its members that they needed to reduce their gas usage by 15% until March. This is an emergency measure announced in response to Vladimir Putin, the Russian President, who warned that the gas supplies from Russia that are sent via the biggest gas pipeline to Europe, may be reduced, or come to a complete halt.

The Nord Stream 1 pipeline had been closed for annual maintenance for 10 days and is scheduled to open again on Thursday. On the same day, the ECB will have its policy meeting, which means the markets are left uncertain.

Market analysts said that they expect the ECB to increase its interest rates by 25 basis points in the meeting, but the EUR/USD pair would remain choppy because there is a possibility of an upside.

Dollar movements

The US dollar had come down against the euro by 0.1% and was trading at $1.0234. The greenback remained flat against a basket of major currencies at 106.64, which kept it close to its high of two decades hit last week at 109.29.

The dollar had also declined against the Japanese yen by 0.1% to trade at 138.04. The Bank of Japan also has a policy meeting on Thursday, but it is not expected to change its dovish stance. As for the British pound, it remained steady against both the euro and the dollar on Wednesday.

This was despite the fact that inflation numbers for Britain had hit 40-year highs, even though they were only slightly higher than forecasts. The pound remained mostly flat against the dollar and was trading at $1.20025.

The cryptocurrency market has also been recording a recovery in the last couple of sessions. The latest one saw Bitcoin rise by 2.38% to hit a value of $23,962.64. This is the third consecutive session of gains and traders are betting that the recent weakness that had been seen in the crypto market has finally come to an end.

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