During the middle of this week’s trading, the euro’s exchange rates rose against the rest of the other major currencies, with the expectation that the European Central Bank’s interest rates would rise. This could lead to increased demand. In the case of the EUR/USD, the currency pair moved towards the resistance level of 1.0866 before settling around the 1.0850 level at the time of writing the analysis. It is waiting for more momentum to complete the opportunity for an upward correction. The euro-dollar pair’s recent losses brought it to the 1.0760 support level.

Commenting on the future of the ECB’s policy tightening, Martins Kazak, a member of the ECB’s board of directors and president of the Central Bank of Latvia, says that a rate hike may come as soon as July. The call will renew the European Central Bank’s expectations of an interest rate hike and support for the euro in the forex foreign exchange market, which largely focuses on the various monetary policy positions of global central banks.

Member Kazaks said a rate hike is possible in July because the ECB’s commitment to a “gradual” approach to raising rates “does not mean a slow response.” He added that the ECB does not need to wait to see stronger wage growth before raising the key lending rate above -0.5%.

Overall, the European Central Bank is currently committed to ending QE in the third quarter, which suggests that ending QE may fall near or at the same time as an interest rate hike. The euro has been hampered by the European Central Bank’s slow journey towards raising interest rates to record lows, with markets expecting a 65 basis point hike in 2022 ahead of Kazak’s statement.

Expectations are likely to rise after these statements and this is evident in the bullish movement in the EUR.

The euro has fallen in the wake of last week’s European Central Bank policy update that offered no hint that interest rate increases were imminent, ensuring the central bank remains on the slow track in the global race to try to avoid rising inflation. The ECB’s guidance was largely unchanged in the March update, and therefore it was disappointed against the growing expectation that policymakers in Frankfurt would lay greater ground for a rate hike in 2022.

 

Commenting on this, Chris Wilgus, global markets analyst, Crown Agents said, “Inflation is of course an ongoing concern, but the ECB has not signaled an end to bond purchases and has stated that it will continue to buy assets even after they start raising interest rates. The euro fell, indicating that the European Central Bank may be behind the curve.

 

The European Central Bank said in a statement that inflation has increased significantly and will remain high over the coming months, “mainly due to the sharp rise in energy costs” indicating that it was not yet overly concerned about the emergence of broader price pressures in the economy. Kazak’s comments will raise questions about whether a rethink of the central bank is really underway. It is only natural that further developments of this kind will support the EUR.

Recently, a new study found that the dollar’s rise will bring some upside, indicating that the EUR/USD exchange rate has not finished falling. According to Alex Kuptsikevich, chief market analyst at FxPro, the dollar could be in the middle of the current bullish trend cycle and EUR/USD could be on track to parity as a result.

Kuptsikevich’s research found that the last time the dollar was at that level against a basket of the six most popular currencies was in April 2017 (except for a short period of stock market panic in March 2020). “The dollar index has peaked in the 103-104 region either way and has not traded consistently higher for the past 20 years,” Kuptsikevich adds in a recent note. The dollar index – a broader measure of the dollar’s strength based on its performance against a basket of major currencies – moved this week above the 100 mark. At the same time, the EUR/USD fell below 1.08; Further gains in the dollar index are sure to be reflected in the EUR/USD given that this is the largest component of the basket.

 

According to the technical analysis of the pair: There is no change in my technical view of the performance of the EUR/USD currency pair. The general trend is still bearish and attempts to correct upwards are still weak. The closest to psychological support is still 1.0800, which confirms the extent to which the bears control the performance and return without it, warning of a bearish move. As mentioned before, there will not be a strong attempt to rebound higher without breaching the 1.1200 resistance, and so far, the Eurodollar gains will remain subject to selling as long as the factors of weakness persist.

Today, inflation figures will be released in the Eurozone. From the United States, the number of jobless claims and the reading of the Philadelphia Industrial Index, then expected statements by European Central Governor Lagarde and Federal Reserve Bank Governor Powell

Despite the stronger than expected numbers of US inflation figures, both in consumer price index and producer prices, the GBP/USD currency pair succeeded in achieving gains to the 1.3118 level. It is stable around at the time of writing the analysis. The rebound came after the currency pair fell towards the 1.2972 support level this week. After this week’s numbers, economists say the US economy may see peak inflation levels: but could this also mean that the peak of expectations for a Fed rate hike is also approaching, as is the case with the top in the dollar.

Key data released this week for the US dollar showed that US inflation increased by 8.5% in March, but core CPI inflation rose by 0.3% month-on-month in March, down from 0.5% recorded in February which is disappointing against expectations of 0.5 %. Commenting on this, Wells Fargo economist Sarah House says: “Despite widespread price increases back in March, we believe this is likely to mark the peak of post-COVID inflation.” Opening last spring.

Overall, the US dollar fell in the wake of the inflation release in a possible indication that inflation expectations and expectations of a more aggressive path to rate hike by the Federal Reserve may be near the extreme levels. “The US dollar pared its gains after the new US inflation numbers provided temporary hope that prices may be at or near the peak,” says Joe Manimbo, senior forex analyst at Western Union. “The dollar bulls may be disappointed.” Because core inflation is cooler than expected because if it continues it could reduce pressure on the Fed to raise interest rates aggressively.”

CIBC Capital Markets economist Catherine Judge says March is likely to be the peak of inflation as indicators will wrap up some strong last year’s readings starting in April, while gasoline prices have fallen recently. However, in order to achieve its 2023 inflation target in the face of labor market tightening, the Fed will be tempted to raise US interest rates by 50 basis points at the next FOMC meeting, followed by a series of 25 basis point hikes at meetings subsequent, before pausing in the fourth quarter.”

Indeed, expectations for a Fed rate hike remain high with a 200 basis point hike still expected in 2022. As of April 12, those expectations have subsided somewhat, a possible confirmation that the peak of rate hike expectations may be near.

For the dollar, this is important because the currency’s strong rally since early 2021 depends heavily on expectations that the Fed will be among the leaders in raising interest rates, thus providing a boost to US yields. Higher bond yields relative to elsewhere tend to support the US currency, but if those yields start to see its merits waning, the dollar’s rally could be called into question.

“We believe the recent rally in the US dollar is less robust than it appears, with a large part due to special moves in the euro and Japanese yen,” according to a Barclays weekly currency briefing, “a large part of the Fed’s adjustment is now in the rearview mirror.” As such, the main driver of dollar strength over the past year or so has been fading increasingly in importance, both now and on a front-end basis.”

According to the technical analysis of the pair: The attempts of the bulls to change the direction of the general trend of the GBP/USD currency pair is still weak. According to the performance on the daily chart, and as mentioned before, the trend will not happen without testing the 1.3335 resistance level. The pair has the opportunity to return to the vicinity of the psychological support 1.3000. Sterling dollar gains remain subject to renewed selling as investors are still weighing the future of the Bank of England rate hike policy and the US Federal Reserve. This is still not in favor of the strength of the US dollar.

The sterling dollar pair is not awaiting important British data today, and the focus will be on the US data, the retail sales numbers, the number of weekly jobless claims and the US consumer confidence from Michigan.