Euro rallies ahead of ECB meeting

London

THE euro rose on Wednesday (Mar 9), briefly nearing US$1.10, supported ahead of this week's European Central Bank meeting by reports that European Union countries were discussing joint bond issuance to finance energy and defence spending.

After touching a 22-month low of US$1.0806 on Monday, the euro stood at US$1.0968 at 1220 GMT, up 0.7 per cent on the day, after a report citing unnamed officials said the EU was discussing joint bond issuance.

European currencies such as Poland's zloty and Hungary's forint rose sharply, rebounding from record lows against the euro, also supported by both central banks hiking rates on Tuesday.

The ECB meets on Thursday but amid the spectre of stagflation, money markets expect policymakers to delay rate hikes until late in the year.

"European currencies have been under heavy pressure for the past couple of weeks and some of these valuations have begun to look stretched," said Jane Foley, head of FX Strategy at Rabobank in London.

"News that the EU is considering issuing debt to finance energy and defence spending underpinned the euro and helped trigger the better tone in the euro and European currencies,"she added.

Sterling rose 0.4 per cent against the dollar to US$1.3148, Poland's zloty jumped 1.8 per cent against the greenback to 4.3808 and Hungary's forint surged 2.8 per cent to 345.80.

Analysts said the euro is unlikely to make much headway while there is so much worry about the war in Ukraine spreading, while expectations for a Federal Reserve rate hike and safe haven demand suggested the US dollar would be unlikely to give up too much ground.

Against a basket of currencies including the euro, the dollar fell 0.5 per cent to 98.628, to sit just below a 22-month peak touched on Monday.

With the uncertainty surrounding the military conflict and also energy prices remaining high, the volatility on the FX market is unlikely to ease, leaving the US dollar with the advantage as a safe haven, said Antje Praefcke, FX analyst at Commerzbank. REUTERS