The euro jumped against the dollar on Thursday after comments from ECB president Christine Lagarde fuelled expectations of monetary policy tightening, although the central bank confirmed its guidance for interest rates and its bond purchase programme.
Lagarde acknowledged that inflation was running hotter than anticipated and with risks tilted to the upside, but continued to predict that it would ease through this year.
Asked if the European Central Bank would raise rates this year, Lagarde said it would assess conditions very carefully and be data-dependent Euro zone money markets are currently pricing an 80 per cent chance of a 10 bps hike in June and almost 100 per cent of hikes by year-end, from a 90 per cent chance of 30 bps hikes before Lagarde's press conference.
Stefano Pesole, forex strategist at ING, said that he believes that the euro-dollar exchange rate will be in a range of US $1.13 - 1.15 in the short term, opening the door to market speculation for a tightening of its monetary policy.
He said that the market can speculate that it might change its guidance at its March monetary policy meeting.
The euro was up 0.8 per cent, hitting its highest level since Jan 18 at US $1.1411.
Risk appetite and support for the dollar were supported by a slump in Wall Street's tech stocks.
The US stock indexes closed lower on Thursday, with the Nasdaq falling more than 2 per cent, as Facebook-owned Meta Platforms' dour forecast jolted the tech sector and threatened to end a nascent recovery in stock markets.
The US dollar index, which measures the dollar against six rivals, fell by 0.5 per cent to 95.513 after falling for three days in a row from around 97.3 on Monday.
As the inflation in Europe is causing a re-assessment of the ECB stance which is providing support for European currencies, analysts think that the more significant challenge to the dollar is coming from Europe.
On Thursday, the pound jumped versus the euro after the Bank of England raised interest rates to 0.5 per cent, and nearly half of its policymakers wanted to contain rampant price pressures.
The British pound was up 0.6 per cent at 83.78 pence against the euro, while rising 0.2 per cent against the dollar.
The world's second-largest criptocurrency, ether, was down 2.4 per cent at US $2,618, and fell 0.9 per cent to trade around US $35,570.