The euro was relatively stable as rising euro area bond yields provided support, although it faced some pressure from a firm dollar amid geopolitical risks in the Middle East.
Markets remain increasingly focused on the inflationary consequences of the elevated energy prices, which are reinforcing expectations of tighter monetary policy from the European Central Bank.
Recent comments from ECB members also affected sentiment.
While Vice President Luis de Guindos warned that economic growth is likely to weaken, highlighting the delicate balance policymakers face between containing inflation and preserving activity, additional comments from Martin Kocher suggested that an interest rate hike may become unavoidable if the inflation outlook fails to improve.
This has reinforced market expectations for interest rate increases, with forecasts pointing to a hike in June.
Looking ahead, attention now turns to tomorrow’s ZEW sentiment surveys for Germany and the euro area. Expectations of deteriorating sentiment could weigh on the euro if concerns over growth intensify. Investors will also closely monitor upcoming speeches from ECB members for further guidance on the policy outlook and the implications for euro area yields and the euro.
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