Euro dips slightly after 3-day rise ahead of ECB meeting

The euro was marginally lower on Thursday ahead of a meeting of the European Central Bank, which might signal a faster-than-expected monetary tightening to fight rising inflation, while souring risk appetite supported the dollar.

The ECB is all but certain to keep policy unchanged on Thursday but may be forced to acknowledge that inflation could stay high for longer than it had projected, a signal that some may take as a hint at a faster exit from stimulus.

“If Ms. Lagarde sticks to this tactic (talking down inflation) in the press conference, the euro will continue to lose value,” Moritz Paysen forex and rates advisory at Berenberg said, describing the euro’s current negative real interest rate of 5.6 per cent - nominal euro zone interest rates minus headline inflation - as “permanently poison for a currency”.

“In the event that the ECB president holds out the prospect of serious monetary tightening, I can very well imagine a revival of the euro,” he added.

The euro was marginally weaker at $1.1296, after rising around 2 per cent in the last three sessions on expectations of a hawkish shift from the ECB.

Meanwhile, a slump in tech stocks on Wall Street soured risk appetite supporting the greenback, with the risk-sensitive Australian and New Zealand dollars falling slightly.

Nasdaq futures fell more than 2 per cent as Facebook owner Meta Platforms Inc’s shares plunged more than 20 per cent late on Wednesday on a weaker-than-expected forecast.

The U.S. dollar index, which measures the greenback against six rivals, ticked 0.06 per cent higher to 96.088, after falling for three days in a row.

“The bigger challenge to the dollar has come from overseas, particularly in Europe,” ING analysts said.

“Stubbornly high inflation here is prompting a re-assessment of the amount of patience the likes of the ECB can show. And the re-pricing of the ECB cycle is providing support to European currencies in general,” they added.

Sterling will also be in the spotlight as the Bank of England looks set to raise interest rates again on Thursday and signal a further unwinding of its pandemic stimulus.

The pound ticked higher against the euro while falling 0.2 per cent versus the dollar.

Bitcoin rose 0.6 per cent to trade around $37,120, while ether, the world’s second-largest cryptocurrency, was down flat at $2,683.