Dollar up, euro down as ECB's Lagarde keeps July policy options open

By Saikat Chatterjee and Hannah Lang

LONDON/WASHINGTON (Reuters) - The dollar climbed on Tuesday and the euro held below $1.06 as European Central Bank (ECB) President Christine Lagarde offered no fresh insight into the central bank's policy outlook.

The ECB is widely expected to follow its global peers by raising interest rates in July to try to check soaring inflation though economists are divided on the magnitude of any rate hike.

The euro held below $1.06 after Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

"The ECB is in a tough spot because it is expected to see more significant slowing than a lot of its peers," said Mazen Issa, senior FX strategist at TD Securities in New York.

"There's an inherent limitation to how much the ECB is going to be able to do, particularly in the relative sense to, say, the Fed," he added, pointing to the ongoing war in Ukraine and the fragmentation risk in the euro zone.

Money markets are pricing in about 238 basis points (bps) of cumulative rate hikes by mid-2023 compared to the around 280 bps they anticipated two weeks ago.

The U.S. dollar index, which struck a two-decade high of 105.79 this month, was last up 0.462% at 104.440.

New York Federal Reserve Bank President John Williams on Tuesday in an interview on CNBC said interest rates "definitely" needed to be between 3% and 3.5% by the end of this year, but that he did not anticipate a U.S. recession.

Elsewhere, a rise in oil prices pushed the Canadian dollar and the Australian dollar up 0.21% and 0.13% respectively. Oil prices have risen 10% in barely a week on supply constraint concerns with Brent crude holding just below $117. [O/R]

"Oil is helping the Norwegian crown and the Canadian dollar to outperform and the euro is again running into resistance at the 1.06 level," Kenneth Broux, an FX strategist at Societe Generale in London, said.

The offshore Chinese yuan moved higher after China reduced COVID quarantine for international travellers.

In crytocurrencies, bitcoin last rose 0.28% to $20,956.91. It fell to as low as $17,588.88 earlier this month.

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Currency bid prices at 10:06AM (1406 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.4300 103.9700 +0.45% 9.164% +104.4600 +103.7500

Euro/Dollar $1.0520 $1.0583 -0.59% -7.46% +$1.0606 +$1.0519

Dollar/Yen 136.1500 135.4800 +0.51% +18.29% +136.3150 +135.1200

Euro/Yen 143.23 143.35 -0.08% +9.91% +144.2700 +142.8700

Dollar/Swiss 0.9575 0.9562 +0.16% +4.99% +0.9586 +0.9535

Sterling/Dollar $1.2207 $1.2265 -0.44% -9.71% +$1.2291 +$1.2206

Dollar/Canadian 1.2851 1.2872 -0.16% +1.65% +1.2878 +1.2820

Aussie/Dollar $0.6933 $0.6925 +0.15% -4.59% +$0.6965 +$0.6916

Euro/Swiss 1.0072 1.0121 -0.48% -2.85% +1.0131 +1.0074

Euro/Sterling 0.8617 0.8626 -0.10% +2.58% +0.8646 +0.8613

NZ $0.6266 $0.6302 -0.50% -8.39% +$0.6313 +$0.6268

Dollar/Dollar

Dollar/Norway 9.8085 9.7985 -0.03% +11.19% +9.8160 +9.7425

Euro/Norway 10.3217 10.3608 -0.38% +3.08% +10.3777 +10.3090

Dollar/Sweden 10.1223 10.0692 -0.12% +12.25% +10.1230 +10.0390

Euro/Sweden 10.6502 10.6631 -0.12% +4.07% +10.6812 +10.6341

 

(Reporting by Saikat Chatterjee in London and Hannah Lang in Washington; editing by Jason Neely, Chizu Nomiyama and Barbara Lewis)