Euro rallies as ECB signals end to negative rates

LONDON — The euro jumped one per cent versus the dollar on Monday after European Central Bank Chief Christine Lagarde signalled the end of ECB negative interest rates.

The euro struck a one-month high at $1.0688 after Lagarde said the central bank would probably draw a line under the era of negative interest rates by September owing to soaring eurozone inflation.

"That's something that we were waiting for so long," noted Swissquote analyst Ipek Ozkardeskaya. 

"Lagarde is finally showing that the [inflation] situation is serious in Europe as well," 

she said.

Central banks around the world are increasing interest rates to tackle the highest inflation in decades but so far the ECB has refused to follow the likes of the Federal Reserve and Bank of England in hiking borrowing costs from record-low levels.

Eurozone inflation soared by an all-time high 7.5 per cent in April. 

The surge has been driven by soaring energy and food prices as economies reopen from pandemic lockdowns and following Russia's invasion of Ukraine.

Oil prices jumped more than one per cent on Monday.

Elsewhere, stock markets mostly climbed after US President Joe Biden said he was considering lifting some trade tariffs imposed on China by predecessor Donald Trump.

Tariffs on hundreds of billions of dollars of Chinese imports are due to expire in July, and Biden has faced growing calls to get rid of the punitive duties to help combat the highest US inflation in more than four decades. Ending the tariffs could help cut roaring US inflation by making imports cheaper.

Speaking in Tokyo, Biden replied "no" when asked if a US recession is inevitable.

"This is going to be a haul, this is going to take some time," Biden said.

The US economy has recovered strongly from its COVID-19 era shutdown, but the highest inflation in four decades and persistent problems in getting international supply chains flowing again are driving pessimism — and Biden's sinking poll numbers.

Biden blamed inflation on fallout from Russia's invasion of Ukraine and other global problems and he defended US economic performance.

"We have problems the rest of the world has but less consequential," he said.

While acknowledging the high fuel prices and food supply crunches caused by the war in wheat-producing Ukraine, Biden said his administration would continue to "grow our economy, create jobs".

Last week Treasury Secretary Janet Yellen said: "I really don't expect the United States to fall into a recession".

However, she cautioned that European countries, which are among the biggest US trading partners, "are more vulnerable" due to reliance on Russian energy imports.

On Wednesday, investors will be looking to the release of minutes from the last Federal Reserve meeting for clues on the pace of future interest rate hikes by the US central bank.