Euro jumps after Bundesbank comments

The euro has received a boost against the US dollar after Germany's central bank said the ECB could increase interest rates.

The euro was trading sideways against the US dollar for most of the morning session until the Bundesbank confirmed that the European Central Bank could increase the eurozone interest rate to counteract inflation. ECB chief Mario Draghi has made it clear that interest rates will remain low until the eurozone can stand on its own two feet, but there is now the possibility of a small rate increase to curb inflation.

A higher interest rate would increase demand for the currency as interest-bearing accounts would pay a higher rate. The eurozone has recently emerged from an 18-month recession and any further positive indicators would probably push the euro higher.

On Wednesday, the US Federal Reserve releases its latest minutes, with the main focus its quantitative easing programme and whether it will be kept the same or trimmed in the near future. The current bond buying scheme is $85 billion per month, and some economists are expecting it to be reduced by $10 or $15 billion before the year is over.

Spot FX EUR/USD (DFB) chart

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