Euro climbs with ECB rate-hike debate - sterling jumps

European Stock Markets

The euro rose on Monday that European Central Bank officials were shifting their debate from bond purchases to the expected path of interest rates, reviving bets that the ECB may raise rates sooner than previously thought. 

Sterling pushed to its highest against the euro in more than five weeks and against the dollar in more than a month, as Britain and the European Union appeared to reach a broad agreement on a post-Brexit transition period and the Irish border.

The debate among ECB policymakers is increasingly about the steepness of the rate path, as some want future expectations contained given the slow rebound in inflation, five sources with direct knowledge of the discussion.

In late-afternoon U.S. trading, the euro zone single currency was last up 0.46 percent, at $1.2344. 

But the euro weakened against the pound on relief over the latest development in talks between Britain and the European Union on a Brexit agreement, which raised optimism about a smoother departure for Britain from the trading bloc. 

Sterling was last up 0.18 percent, at 87.95 pence per euro. It was up 0.67 percent, at $1.4035, against the dollar. 

The strength in euro and sterling put downward pressure on the dollar as traders speculated whether the Federal Reserve may signal a faster pace of rate increases in the coming months as the labour market tightens further. 

The Federal Open Market Committee, the U.S. central bank’s policy-setting group, will meet on Tuesday and Wednesday. Rates futures imply traders have fully priced in a rate increase which would raise the target range to between 1.50 percent and 1.75 percent. 

A sharp sell-off in Wall Street stocks likely added more pressure on the dollar.

The dollar index, which tracks the greenback versus a basket of six other major currencies, fell 0.45 percent to 89.826. 

The futures market showed speculators bet on the dollar deteriorating further. 

Their net short positions against the greenback grew to a five-month high last week, according to Commitments of Traders data released on Friday.