EUR/USD traded in proximity to a fresh one-week high on Tuesday on expectations of a 50 basis point interest rate hike by the European Central Bank at its upcoming policy meeting next week.
ECB board member Isabel Schnabel said in an interview with Politico that a 50 basis point rate hike was not off the table and depended on economic data – inflation in particular.
On the other hand, another ECB official Francois Villeroy de Galhau told Le Figaro that further rate hikes should be limited in both number and size.
Markets are now pricing in a nearly 70% chance of a 25 basis point rate hike and a 30% chance of a 50 basis point increase.
“It’s not fully priced in yet, so if the ECB does go 50 then it will be euro supportive, I think that’s what’s being reflected in the market,” Bank of Singapore currency strategist Moh Siong Sim was quoted as saying by Reuters.
As of 8:12 GMT on Tuesday EUR/USD was edging down 0.14% to trade at 1.1030. During the early phase of the Asian trading session, the major Forex pair went up as high as 1.1067. The latter has been the pair’s strongest level since April 14th (1.1076).
The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging up 0.14% to 101.460 on Tuesday.
The dollar did not manage to register sizable gains after media reports of decreasing deposits at First Republic Bank in the US prompted market players to renew expectations that the Federal Reserve may shift swiftly from rate hikes to rate cuts.
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