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Investing.com – The euro continued its strong start to the week against the dollar as rampant inflation data buoyed expectations of sooner rate hikes, but the European Central Bank will pour cold water on rate hikes bets in its monetary policy update due Wednesday.
EUR/USD climbed 0.34% to $1.1307.
“Today’s flash estimate of euro area inflation in January smashed all expectations to increase somewhat the probability that the ECB might raise rates as soon as this year,” Daiwa Capital Markets said ahead of the central bank’s meeting.
But market participants aren’t so sure that fresh signs of inflation pressures will spur change in tone from the ECB governor Christine Lagarde, who has repeatedly said that a patient approach is needed to tightened monetary policy.
“[W]e think that patience will prevail over panic in the ECB’s message when it comes to inflation, and given the bar for a hawkish surprise is placed quite high after this week’s consumer price index figures, we expect EUR/USD to give up some of its recent gains after the ECB announcement,” ING said in a note.
Still, market participants are set for fresh clues on how strong the ECB’s resolve is to stick with its current monetary policy stance as Lagarde will be peppered with questions about when liftoff will get underway as inflation is nearing the cental bank’s 2% target.
“[I]t is perfectly feasible that the updated forecasts will nudge up these figures to 2.0%Y/Y or so, suggesting that the conditions required for rate lift-off might now be met,” Daiwa added.
