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The euro rises on hawkish ECB signals, and the dollar falls

Image: Reuters Berita 24 English - On Monday, the euro rose to its highest level against the dollar in more than three weeks. This happened ...

Image: Reuters

Berita 24 English - On Monday, the euro rose to its highest level against the dollar in more than three weeks. This happened as European Central Bank officials argued for more aggressive monetary tightening and the dollar fell against most major currencies except the Japanese yen, which has been under attack.

The European common currency went up 1.45% to $1.0198, which was its highest level since August 17 and a big jump from last week, when it hit a 20-year low of $0.9862.

"Positions are pretty stretched," said Jane Foley, head of FX strategy at Rabobank. "Everyone and his dog has been long dollar, and (ECB) comments over the weekend were very hawkish, which added to the idea that maybe the market is overdone."

On the weekend, Bundesbank President Joachim Nagel told German radio that "further clear steps must be taken" if the situation with consumer prices doesn't change.

Sources at Reuters say that ECB policymakers see a growing chance that they will have to raise their key interest rate to 2% or more to stop record inflation in the euro zone.

Foley said that investors were moving away from the safe haven dollar because of the chance that U.S. inflation data on Tuesday would be lower. However, he said that this was probably just a pocket of people taking profits.

"The dollar will stay strong for another six months or so as long as the market is afraid to take big risks in high-risk currencies," she said.

The euro was also stronger than the pound, and on Monday it reached 87.22 pence, which was its highest level since February 2021.

Because the dollar was weaker than usual, the value of the pound rose by about 1% to $1.1695, its highest level this month. This was a small improvement from last week's 37-year low.

The dollar index, which compares the dollar to six other major currencies, was down 1% at 107.8. This was the lowest it had been in two weeks, and it was down from Wednesday, when it hit a 20-year high of 110.79.

Investors are being cautious because the U.S. Analysts at the Commonwealth Bank of Australia said that the CPI report could show whether the U.S. At its meeting next week, the Federal Reserve will raise rates by 50 basis points or 75 basis points.

Fed officials kept talking in a hawkish way on Friday, before a period of silence that led up to the central bank's meeting.

Fed Governor Christopher Waller said he supports "a significant increase at our next meeting," and St. Louis Fed President James Bullard repeated his call for a 75 basis point increase.

At 142.66 yen, which is close to its 24-year high of 144.99 yen reached last week, the dollar was stable against the rate-sensitive Japanese yen.

Over the weekend, Japanese officials hinted that they might step in to stop the currency from falling even more. In an interview with a local TV station, a top government spokesman said that the government must take whatever steps are needed to stop the yen from falling too much.

At the same time, sources told Reuters that the Bank of Japan is not likely to raise interest rates to help the currency.

The Australian dollar was up 0.5% to $0.6882, and it usually does well when investors are optimistic about growth. Bitcoin, which moves in a similar way, was up 1.9% to $22,260, its highest level since mid-August.

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