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FRANKFURT, April 26 (Reuters) – The European Central Bank should raise interest rates soon and has room for up to three hikes this year, ECB policymaker Martins Kazaks told Reuters, joining a chorus of policymakers calling for a swift exit from stimulus.

The ECB has been rolling back support at a glacial pace for months but a surge in inflation to nearly four times the ECB’s 2% target is intensifying calls to finally end a nearly decade-long foray into ultra-easy monetary policy.

“A rate rise in July is possible and reasonable,” Kazaks, who is Latvia’s central bank governor, said in an interview. “Markets are pricing two or three 25 basis point steps by the end of the year. I have no reason to object to this, it’s quite a reasonable view to take.”

“Whether it happens in July or September is not dramatically different, but I think July would be a better option,” he said.

Kazaks said that as part of normalisation, the ECB should eventually raise interest rates to the neutral rate, at which the central bank is neither stimulating nor holding back growth.

Various estimates put this rate at 1% to 1.5%, Kazaks said, well above the current minus 0.5% deposit rate and its main refinancing rate, stuck at zero.

Kazaks added that initially the ECB should raise rates by 25 basis points but this increment is not carved in stone. He also said there was no particular reason the central bank should stop once it gets back to zero, even if that is a psychological threshold.

The ECB has so far guided markets for a rate rise only “some time” after its bond purchase scheme, commonly known as quantitative easing, ends in the third quarter.

But this formulation is too vague and a large chunk of the rate-setting Governing Council is pushing for an end to the bond buys at the start of the third quarter, so rates could possibly rise in July.

“Ending the Asset Purchases Programme in early July is appropriate,” Kazaks said. “The APP has fulfilled its purpose so it’s not necessary anymore.”

Part of the urgency is that inflation expectations have started to move above the ECB’s target, a warning sign that investors and businesses are starting to doubt the ECB’s resolve and ability to hit its target further out.

But the central bank has been cautious as inflation undershot its target for nearly a decade and dealing with excessive price growth is a relatively new phenomenon.

“I don’t think (de-anchoring) has happened yet, but the risks are there. That’s why I think a rate hike relatively soon is needed,” he said.

The ECB will next meet on June 9 where policymakers are expected to put a firm end date on bond buys and provide clearer guidance on interest rates.

(Reporting by Balazs Koranyi; Editing by Jacqueline Wong)

HONG KONG, April 26 (Reuters) – The dollar held near a two-year peak on Tuesday as concerns about the economic impact of China’s COVID-19 lockdowns held up the greenback’s safe-haven appeal and aggressive U.S. interest rate hike expectations kept bond yields elevated.

The dollar index, which measures the greenback against six main peers, was 0.13% lower at 101.59 after hitting a two-year peak of 101.86 overnight.

It has gained 3.3% so far this month, which would be its largest month of gains since November 2015.

“Further (dollar index) upside remains a good bet. China growth risks are rising as authorities pursue an aggressive COVID campaign, conditions around Ukraine remain volatile and ‘Fed-speak’ remains as hawkish as ever,” said analysts at Westpac in a note.

China’s financial hub of Shanghai has now been under strict lockdown to fight COVID for around a month, while Beijing overnight ramped up plans for mass-testing of 20 million people and fuelled worries about a looming lockdown.

Hawkish comments by various central bank policymakers last week also raised the prospect of aggressive interest rate hikes. The most significant of these came from the U.S. Federal Reserve, which markets expect to raise rates by a half point at each of its next two meetings.

China’s offshore yuan was slightly higher however, at 6.5572 per dollar after the People’s Bank of China said late on Monday it would cut the amount of foreign exchange banks must hold as reserves.

That helped the currency recover from a year low of 6.609 per dollar on Monday, hurt by fears about China’s economic growth.

Equity markets and U.S. bond yields also edged higher on Tuesday amid an improvement in overall risk sentiment.

The euro EUR=EBS was at USD 1.0727, up 0.14% and edging off a two-year low of USD 1.0697 hit on Monday, when market nerves offset optimism from the re-election of French President Emmanuel Macron.

The pound GBP=D3 was at USD 1.2744, up 1.8%, having hit its lowest since September 2020 overnight. U.S. futures market data shows funds have amassed their biggest wager against the pound since October 2019, a bet now worth close to USD 5 billion.

The Australian dollar AUD=D3 rebounded 0.6% from its two-month low overnight, which it hit after China lockdowns weighed on commodity prices.

The dollar was little changed against yen JPY=, at 128.16. The Japanese currency has managed a very slight recovery this week from last week’s 20-year low of 129.40.

Bitcoin was a little firmer at USD 40,600, and ether was at USD 3,000.

Researchers at crypto liquidity provider B2C2 said crypto market trading was currently correlated closely with equity markets, in the absence of any strong crypto-related themes.

(Reporting by Alun John; Editing by Kenneth Maxwell and Sam Holmes)

TOKYO, April 26 (Reuters) – Japanese shares ended higher on Tuesday, tracking Wall Street gains overnight, but concerns over the impact of China’s COVID-19 lockdown on domestic companies capped their rise.

The Nikkei share average gained 0.41% to close at 26,700.11. The broader Topix rose 0.11% to 1,878.51, after briefly entering negative territory earlier in the session.

Shanghai’s COVID-19 lockdown misery dragged into a fourth week, while orders for mass testing in Beijing’s biggest district sparked fears that the Chinese capital could be destined for a similar fate.

“Investors were cautious about the impact of possible China’s economic slowdown on Japanese companies, as now there is a possibility that Beijing could be locked down,” said Tomoichiro Kubota, senior market analyst at Matsui Securities.

“Today’s market rose thanks to the gains on Wall Street and falling U.S. Treasury yields.”

Technology investor SoftBank Group provided the biggest boost to the Nikkei, rising 4.13%, followed by medical services platform M3, which jumped 5.04%. Chip-testing equipment maker Advantest rose 2.28%.

Fujitsu rose 2.17% after a report said the computer maker was weighing a sale of it scanning business to office equipment maker Ricoh, which fell 1.08%.

Canon Marketing Japan jumped 7.00% after the sales arm of camera maker Canon raised its profit outlook.

Sumitomo Metal Mining tumbled 6.83%, and was the biggest loser on the Nikkei, after the miner and smelter said it would discontinue a long-running feasibility study on a nickel processing plant project in Pomalaa, Indonesia.

The volume of shares traded on the Tokyo Stock Exchange’s main board was 1.08 billion, compared to the past 30-day average of 1.22 billion.

(Reporting by Junko Fujita; Editing by Vinay Dwivedi)

HONG KONG, April 26 (Reuters) – The dollar held near a two-year peak on Tuesday as concerns about the economic impact of China’s COVID-19 lockdowns held up the greenback’s safe-haven appeal and aggressive U.S. interest rate hike expectations kept bond yields elevated.

The dollar index, which measures the greenback against six main peers, was 0.13% lower at 101.59 after hitting a two-year peak of 101.86 overnight.

It has gained 3.3% so far this month, which would be its largest month of gains since November 2015.

“Further (dollar index) upside remains a good bet. China growth risks are rising as authorities pursue an aggressive COVID campaign, conditions around Ukraine remain volatile and ‘Fed-speak’ remains as hawkish as ever,” said analysts at Westpac in a note.

China’s financial hub of Shanghai has now been under strict lockdown to fight COVID for around a month, while Beijing overnight ramped up plans for mass-testing of 20 million people and fuelled worries about a looming lockdown.

Hawkish comments by various central bank policymakers last week also raised the prospect of aggressive interest rate hikes. The most significant of these came from the U.S. Federal Reserve, which markets expect to raise rates by a half point at each of its next two meetings.

China’s offshore yuan was slightly higher however, at 6.5572 per dollar after the People’s Bank of China said late on Monday it would cut the amount of foreign exchange banks must hold as reserves.

That helped the currency recover from a year low of 6.609 per dollar on Monday, hurt by fears about China’s economic growth.

Equity markets and U.S. bond yields also edged higher on Tuesday amid an improvement in overall risk sentiment.

The euro was at USD 1.0727, up 0.14% and edging off a two-year low of USD 1.0697 hit on Monday, when market nerves offset optimism from the re-election of French President Emmanuel Macron.

The pound was at USD 1.2744, up 1.8%, having hit its lowest since September 2020 overnight. U.S. futures market data shows funds have amassed their biggest wager against the pound since October 2019, a bet now worth close to USD 5 billion.

The Australian dollar rebounded 0.6% from its two-month low overnight, which it hit after China lockdowns weighed on commodity prices.

The dollar was little changed against yen, at 128.16. The Japanese currency has managed a very slight recovery this week from last week’s 20-year low of 129.40.

Bitcoin was a little firmer at USD 40,600, and ether was at USD 3,000.

Researchers at crypto liquidity provider B2C2 said crypto market trading was currently correlated closely with equity markets, in the absence of any strong crypto-related themes.

(Reporting by Alun John; Editing by Kenneth Maxwell and Sam Holmes)