Euro on track for fourth monthly profit in row

Euro fell in European trade against dollar for fourth straight session, hitting two-week lows on profit-taking off nine-month highs. 

The common currency is still on track for the fourth monthly profit in a row as the ECB commits to its stance of aggressive policy tightening. 

EUR/USD fell 0.3% to 1.0812, the lowest since January 20, with a session-high at 1.0860. 

Euro closed down 0.2% yesterday, the third profit in a row off nine-month highs at 1.0929. 

Monthly Trades

Euro is up 1% so far against dollar in January on track for the fourth monthly profit in a row, the longest such streak since May 2020. 

The strong gains came as concerns about a widening policy gap between the US and Europe fade with the ECB preparing for a 0.5% rate hike, compared to a 0.25% rate hike by the Fed. 

The ECB

ECB President Christine Lagarde said recently that inflation remains too high and the bank is committed to continuously increase interest rates until inflation is brought back to 2%.

Lagarde once again repeated the use of the phrase "staying the course" when talking about interest rate decisions at upcoming meetings, meaning the current pace will be maintained at least until the second quarter of the year.

Other ECB members strongly hinted at multiple 0.5% rate hikes in both February and March.

Estimates

Despite current losses, analysts still expect the euro to pierce $1.1 in the short term as the ECB prepares a rate hike that's double the hike of the Fed.

Broadly, the euro is expected to advance against most major rivals to year-highs.

How would higher interest rates impact euro?

Naturally, euro is expected to extend gains against a basket of major rivals as the ECB prepares consecutive policy hikes this year.