The US rumor mill is giving the Euro wind in its sails.
Earlier this month the central bank cut interest rates for the second time in a row and investors believe the central bank has now raised borrowing costs to fight inflation. Recent weak macroeconomic data and cooling inflation fuel hopes that interest rates will be cut again in 2024 to limit the economic damage from previous interest rate hikes. For example, the first interest rate cut in the US could take place as early as March next year.
In response, the euro rose to its highest level since late August. The US dollar is under pressure due to speculation about the first interest rate cut. The euro hit its highest level in nearly three months at $1.0936 on Monday morning. By 8:50 am the coin was trading at $1.0912, up from $1.0876 on Friday.
However, Federal Reserve Chairman Jerome Powell has warned that the central bank will not hesitate to raise interest rates further if necessary to control inflation. The European Central Bank (ECB) also decided last month not to raise borrowing costs further to combat inflation.
Several ECB directors have recently indicated that interest rates are high enough to bring inflation down to the desired level of 2 percent. ECB President Christine Lagarde has warned that the central bank needs to be “vigilant” about inflation. According to Lagarde, there will be no interest rate cuts in the euro area for the next few quarters. (AP)
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