ECB Governing Council member Klaas Knot said on Sunday, "expect us to raise rates by 0.5% in February and March and expect us to not be done by then and that more steps will follow in May and June.” His colleague Olli Rehn noted that he sees grounds for "significant interest rate increases from the ECB this winter and the coming spring.”
Meanwhile, the latest Reuters poll of economists showed that a majority of them now expect the ECB deposit rate to peak at 3.25% by the second quarter of this year, up from the previous estimates of 2.75% a month ago.
The hawkish ECB expectations combined with increased bets of a slow down in the US Federal Reserve’s (Fed) tightening pace is helping narrow the monetary policy divergence between both central banks, in turn, aiding the upside in the EUR/USD pair.
The US Dollar also remains undermined by the advance in the Japanese stocks and a positive close on Wall Street last Friday. Meanwhile, thin trading conditions are likely to extend, as many major centers in Asia are closed for Lunar New Year celebrations. Therefore, the pair remains at the risk of some volatility amid light trading and a lack of significant economic data from both sides of the Atlantic this Monday.. Although ECB President Christine Lagarde’s speech at 17:45 GMT could provide some trading incentives.
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