European central bank looks up on rate hikes amid US dollar

269
2
European central bank looks up on rate hikes amid US dollar

The European central bank looks through the price growth and stands up on its policy, currency has started to gains because of central European policymakers that are turning to interest rate hikes to tackle surging inflation. However, a stronger US dollar amid the Federal Reserve is cutting some risk appetite and affecting the region, which is struggling with a slowing recovery due to global supply disruptions and a rising number of COVID-19 cases that have made investors cautious. The crown has continued to surpass peers, and received a boost last week when the central bank lifted its base rate by 125 basis points to 2.75%, a higher increase than anyone expected. The currency has edged up 0.25% to trade at 25.22 to the euro by 1057 GMT, after a high of 25.185 hit on Friday. The forint lost 0.3% in Hungary, and was just about held on to the strong side of the psychological 360 per euro level. Equilor analysts said the 358 level would give some resistance to continued gains. The forint can test the 200 day moving average at 356.50, according to Equilor. The Polish Zloty held steady along with Romania's leu. The zloty retreated from highs last week after the Polish central bank surprised us for a second straight month with a 75 basis point rate increase. The view was tempered after central bank Governor Adam Glapinski has said no more rate hikes would be necessary, although others have shown support for more tightening. Markets will be going to be tuned to a rate decision on Tuesday, with another increase expected. We expect the Romanian central bank to raise the key rate by 50 bps to 2%, although in light of the surprises delivered in Czechia and Poland, we see risks of a bolder 75 bps move, Erste Group Bank said. A slew of new inflation data is due this week with expectations of a continued surge in prices. In October, the Polish inflation soared to 6.8%, according to preliminary statistics office data at the end of the month.