EUR buoyed by Fed hawkishness but could see volatility at ECB meeting

The euro has broken through the 1.17 level on the US dollar in the past couple of trading sessions, buoyed by the lack of hawkishness in the Fed’s December communications and growing bets that the next move in ECB rates is now more likely to be up than down.

This morning’s German inflation figures supported the argument that price pressures are now nicely contained, just above the ECB’s 2% target. This should both encourage the Governing Council to stand pat on policy for the foreseeable future, while also fostering higher growth through higher disposable incomes and real wages.

Focus now shifts to next week’s ECB rate decision.

It goes without saying that policy will be kept unchanged, but the euro could run into some volatility off the back of Lagarde’s remarks and/or the updated economic projections.

Lagarde has already made clear this week that the growth forecasts will be upped on Thursday, so all eyes will be on the extent of the upgrade.