At the beginning of the new trading week, the euro showed a rise amid the victory of Emmanuel Macron in the recent presidential election. Meanwhile, the US dollar is still confidently gaining in value
Early today, the euro slightly appreciated after the debate among the current French President Emmanuel Macron and far-right competitor Marine Le Pen. However, to recoup all the losses, the euro should show a significant rise. A divergence of the monetary policies of the ECB and the Fed could become the main obstacle for the euro's growth. Such a difference is likely to be a negative factor for the euro in the long term. At the moment, the euro/dollar pair is hovering within the range of 1.0776-1.0777.
Hawkish comments provided by the ECB's representatives supported the euro, but only for a short period of time. Luis de Guindos, a Vice-President of the European Central Bank, also added fuel to the problem, saying that the benchmark rate could be hiked only in July 2022. It will be the first rise in the last 12 years. However, the politician said that such measures could be explained by the current macroeconomic reports and the surging inflation. Notably, some market players expect the ECB to raise the benchmark rate by 80 basis points by the end of the year.
However, the ECB's officials have different views on the situation. ECB president Christine Lagarde did not say anything about the time of the first rate hike. "In the current conditions of high uncertainty, we will maintain optionality, gradualism and flexibility in the conduct of monetary policy," Christine Lagarde pinpointed.
Earlier, Fed Chair Jerome Powell emphasized that the key interest rate hike of 50 basis points would be the key issue in the next meeting. He believes that at the moment, the US economy is coping well with the current market situation. In addition, demand for labor forces exceeds supply.
Just after the announcements made by Christine Lagarde and Jerome Powell, the euro lost its bullish momentum. Against the backdrop, the US dollar gained in value. In fact, the greenback is mainly supported by the possibility of the key interest rate hike by the Fed. According to preliminary estimates, next month, the regulator may raise the benchmark rate by two times from the current level of 0.25%-0.50%.
At the end of the previous week, demand for the US dollar was increasing. Mainly big players were buying the asset. The leading global funds resumed increasing positions on the greenback's appreciation, reaching a 1.5-month high. At the same time, hedge funds stopped opening positions on the US dollar rise. Such a trend may cause concern among buyers of the dollar.
The largest global central banks are focused on their current monetary policies and the way to slacken inflation, which is surging at an extremely high pace. The situation is also aggravated by the Russia-Ukraine conflict. However, economists and market participants still hope that the countries will reach a compromise.