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Euro US Dollar (EUR/USD) Exchange Rate Gains as ECB Rate Hike Bets Increase

Euro (EUR) and US Dollar

Euro US Dollar (EUR/USD) Exchange Rate Climbs amid ECB Rate Hike Bets

The Euro US Dollar (EUR/USD) exchange rate is trending higher today. The currency pair is likely being supported by a risk-on mood that is sapping demand for the US Dollar (USD). Expectations of hawkish action from the normally cautious European Central Bank (ECB) may also be pushing EUR/USD higher today.

At time of writing the EUR/USD exchange rate is at around $1.0588, which is up around 0.4% from this morning’s opening figures.

Euro (EUR) Trends Higher ahead of Lagarde Speech

The Euro (EUR) is steadily climbing against its rivals today amid rate hike bets today. Gains for the single currency are limited ahead of a key speech from European Central Bank (ECB) President Christine Lagarde, however.

Slower economic growth in the Eurozone has seen the markets re-pricing the central banks tightening plans. Optimism surrounding the currency remains high however as the central bank’s hawkish tone continues to surprise investors.

Economists are concerned at the prospect of bond yield fragmentation across the trading bloc, however. There are fears that, having acted too slowly, the ECB could tighten too aggressively and increase pressure on more indebted Eurozone economies.

Charles Goodhard, a former Bank of England (BoE) policymaker, had the following analysis:

‘The ECB is in great difficulty. They can’t normalize very rapidly — loading increases in interest rates up front — without dealing with the fragmentation issue.’

Confidence in the Euro could also be dented by fears that the central bank will be unable to limit soaring inflation without causing damage to the Eurozone’s economy. The war in Ukraine has caused additional inflationary pressures amid fears that Russia could cut off energy supplies to Europe.

US Dollar (USD) Suppressed despite Upturn to Durable Goods

The US Dollar (USD) is seeing mixed movements today. The safe-haven ‘Greenback’ is seeing some support amid fears of a possible global economic slowdown.

Figures today indicating a fall to industrial profits in China, despite the easing of Covid-19 restrictions, increased concern that the world’s second-largest economy could be struggling.

An above-forecast rise to US durable goods orders in May could also be helping to push USD higher today. The figures suggested that business activity remains firm despite rising interest rates and soaring prices.

There are signs that consumer demand for such goods could be weakening over amid intense pressure on household spending.

EUR/USD Exchange Rate Forecast: Will Lagarde & Powell Signal Hawkish Rate Hikes

Looking to the week ahead for the Euro, the single currency could see movement after a speech by ECB President Christine Lagarde later today. If Lagarde confirms future rate hikes then it could help to bolster EUR.

German inflation figures on Wednesday and Eurozone inflation figures on Friday could have a similar effect if they remain high as forecast. Also for both Germany and the Eurozone, unemployment figures could prompt additionally rate hike bets if they remain high as forecast on Thursday.

For the US Dollar, a speech from Fed Chair Jerome Powell on Wednesday could have a mixed effect on USD. Signals from Powell of increased interest rate hikes could boost the currency, although too hawkish a stance from Powell could see USD slip amid fears of a possible recession.

A predicted rise to the PCE Price Index on Thursday, the Fed’s preferred measure of inflation, could bolster the US dollar if figures print as forecast. Persistently high inflation could see an increase on bets of future rate hikes from the Fed.