The U.S. dollar and euro held firm on Wednesday as traders assessed European Central Bank's latest statements and waited to see whether data due this week will confirm that U.S. inflation is in retreat.
While traders awaited U.S. inflation data to help firm up Federal Reserve interest rate hike expectations, French ECB policymaker Francois Villeroy de Galhau said on Wednesday that interest rate hikes will need to come at a "pragmatic pace" in the coming months.
ECB staff published an article arguing that "very strong" wage pressures are likely over the next few quarters. But ECB's governing council member Mario Centeno said on Tuesday he expected inflation to fall again in March and the monetary tightening process was nearing its end.
The euro hovered around its strongest level against the dollar in seven months, flattening at $1.0732. The dollar index rose 0.2% to 103.45 against a basket of currencies including the euro.
The market still expects interest rates to peak at approximately 3.5%, followed by a reversal of European monetary policy in early 2024, with interest rates falling again, said Ulrich Leuchtmann, Head of FX at Commerzbank.
