Euro jumps 1% against dollar awaiting ECB rate hike

LONDON — The euro jumped more than 1 per cent against the dollar on Tuesday, as traders mull whether the European Central Bank (ECB) could hike interest rates more than expected to fight runaway inflation.

The European single currency, which last week dropped to parity against the US unit, rallied 1.1 per cent to $1.0253 ahead of an ECB meeting scheduled for Thursday.

The central bank has signalled it will raise eurozone interest rates this week for the first time in more than a decade but is under pressure to do more to tackle spiralling prices.

It intends to raise borrowing costs by a quarter point, the first such move since 2011. 

"In all likelihood, the ECB will raise interest rates by 25 basis points this week and follow this up with a 50-basis-point move in September," noted Matthew Ryan, head of market strategy at financial firm Ebury.

"That said, we do not rule out a 50-basis-point rate hike at this week's meeting. We have already seen most major central banks deliver bumper rate increases in recent weeks in an attempt to control rampant price growth."

At around 08:40 GMT, the euro traded at $1.0234, up 0.9 per cent.

Last week, the euro hit parity with the dollar for the first time in nearly 20 years, on growing fears of a eurozone recession as high inflation hampers growth.