Euro Strengthens Against Dollar, ECB Rate Hike Expected

In global markets, the value of the dollar against a basket of currencies fell last week as it is expected that the Fed will keep interest rates unchanged next week, while the European Central Bank is likely to raise them further.

The dollar index, which shows the movement of the value of the US dollar against the other six major world currencies, weakened by 0.5 percent last week, to 103.53 points.

At the same time, the exchange rate of the dollar against the European currency fell by 0.4 percent, bringing the price of the euro to 1.0750 dollars.

The dollar also weakened against the Japanese currency, by 0.4 percent, to 139.40 yen.

The exchange rate of the US currency moved in a narrow range last week as there were no news to clearly direct it.

Investors are reluctant to take risks until they see new data on inflation trends in the US, which could influence the decisions of the leaders of the US central bank at next week’s meeting.

The inflation report will be released on June 13, and analysts in a Reuters survey estimate that consumer prices in May slightly fell on a monthly basis, while the core inflation rate, excluding food and energy prices, is likely to remain elevated.

It is believed that easing inflation will prompt the Fed to pause in the process of raising interest rates.

Currently, the money market estimates that there is about a 75 percent chance that the leaders of the US central bank will keep interest rates unchanged at next week’s meeting.

However, as inflation is not easing quickly enough, most analysts believe that the Fed will raise rates again in July after the pause in June.

Next week, the leaders of the European Central Bank will also convene, and most analysts expect a further increase in rates by 0.25 percentage points, to 3.50 percent.

Nevertheless, the euro did not significantly strengthen last week as the latest data from Eurostat showed that the eurozone economy fell into recession in the first quarter.