(Updated price, market activity, comments on US market open; previous LONDON)
By Saqib Iqbal Ahmed and Samuel Indyk
NEW YORK, Jan 23 (Reuters) – The dollar fell slightly against the euro on Monday as the single currency found support on comments from European Central Bank officials signaling further interest rate hikes in Europe.
The euro hit a high of $1.0927, to trade at its highest level since April last year, before paring its gains to trade 0.1% higher at 1.0865 $.
The euro’s early gains were helped by comments from European Central Bank (ECB) board members Klaas Knot and Peter Kazimir, who both argued for two more 50 basis point hikes during meetings in February and March.
A Reuters survey of analysts also favored 50 basis point hikes in the next two meetings and a possible rate spike of 3.25%, from the current rate of 2%.
“What’s really driving things is the divergence in central bank policies,” said Joe Manimbo, senior market analyst at Convera in Washington.
“At least in the current cycle, the market thinks the more hawkish days of the Fed are behind it. So when you weigh the outlook for central bank policy, that paints the dollar at a disadvantage, given that the Market bets on the Fed move more slowly than its overseas counterparts,” Manimbo said.
Fed funds futures priced nearly every chance the Fed could move 50 basis points next month and steadily lowered the likely peak in rates to 4.75% to 5.0% from 4, 25% currently at 4.50%.
The euro was also supported by easing recession fears amid falling natural gas prices, according to Jane Foley, head of currency strategy at Rabobank.
“The growth of confidence in the economic outlook, or at least the removal of much of the pessimism, is part of the euro’s story,” Foley said.
The dollar, which rose against the yen after the Bank of Japan (BOJ) defied market pressure to reverse its ultra-easy bond control policy last week, rose 0.68% to 130.48 yen, after last week’s wild swings between 127.22 and 131.58.
“The Bank of Japan this month signaling a hesitation to get hawkish has really slowed the yen’s rebound,” Manimbo said.
Analysts assume the BOJ will hold the line until at least the next policy meeting in March, although one hurdle is the expected appointment of a new BOJ governor in February.
The pound fell from a seven-month high against the dollar hit in Asian times on Monday, after being helped last week by data showing the UK economy was performing better than expected, which also fueled expectations. further interest rate hikes. The pound fell 0.3% to $1.23615.
Meanwhile, bitcoin was little changed on the day at $22,849, stabilizing after jumping around a third in value since early January as investors shrugged off pessimism following the much-publicized crash. of the FTX crypto exchange FTX. (Reporting by Samuel Indyk in London and Wayne Cole in Sydney; Editing by Bernadette Baum, Kirsten Donovan)