The Forex euro gained on Tuesday after it was announced that policymakers at the European Central Bank will decide on Thursday whether to hike interest rates by 25 or 50 points in an effort to control record-high inflation.
The decline in expectations for an aggressive 100 basis point boost from the Federal Reserve later this month helped to weaken the dollar, which caused the euro to rise from the sub-parity levels of last week. The money markets have priced in a 60 percent likelihood of a 50 basis point raise on Thursday, up from a 25 percent chance on Monday, pushing the euro up to USD 1.0254, up 1.1 percent on the day and to its highest level since July 6.
To 106.64, the dollar index decreased 0.8 percent. That was significantly below the week's high of 109.29, a level not seen since September 2002, as well as Monday's low of 106.88. Given the region's economic challenges, continued worries about natural gas supply, and the blow to its economy, analysts are hesitant to change their stance from bearish to positive on the euro.
In a letter dated July 14 and obtained by Reuters on Monday, Russia's Gazprom imposed force majeure on gas deliveries to Europe to at least one significant customer. The Australian dollar gained 1.2 percent to USD 0.6894 in other markets after Reserve Bank of Australia policymakers indicated they thought additional policy tightening was necessary in addition to recent rate hikes.
Ahead of the Bank of Japan's policy announcement on Thursday, the Japanese yen rose but remained close to a 24-year low due to the central bank's frequent statements in recent days that it will maintain its ultra-easy policy settings.
Near Monday's one-week high of USD 1.2032, sterling increased 0.6 percent to USD 1.2017. For the first time since March 2020, it dropped to USD 1.1761 on Thursday as Britain prepared for a bitter and polarising election to succeed ousted Prime Minister Boris Johnson.
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