Dollar Falls, Euro Approaches Parity Ahead of ECB Meeting

The US dollar slipped in European trade early Thursday and the euro recovered ahead of the latest European Central Bank rate decision, which is expected to result in another aggressive hike.

The Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 109.630 at 02:55 ET (06:55 GMT), retreating from Wednesday's peak of 110.79, a level not seen since June 2002. The euro accounts for more than 50% of the dollar index and the EUR/USD pair traded largely unchanged at 0.9996, climbing back towards parity after hitting a 20-year low of 0.9863 earlier in the week. The ECB is expected to make its latest policy announcement at 08:15 ET (12:15 GMT) and is expected to raise interest rates significantly to combat inflation even as the risk of recession in the Eurozone rises. The debate is over the size of the increase, with the consensus moving towards a 75 basis point hike led by the US Federal Reserve, with the central bank thought to have limited time to try to take back control over record inflation before growth in the region stalls. ABN Amro expects the ECB to raise policy rates by 75 basis points, noting that "while headline inflation has continued to accelerate, the drivers of price pressures have generally been higher than the ECB expected in June." Moreover, "GDP in the first half of this year has been higher than the central bank expected." Yet, despite these gains in the Euro, the dollar remains well supported as the Fed is expected to hike by 75 basis points later this month. Attention will be on Federal Reserve Chairman Jerome Powell's comments at the Cato Institute conference later in the session as Fed officials enter a blackout period ahead of the US Federal Reserve's meeting on September 20-21. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!