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Euro US Dollar Exchange Rate Climbs After ECB President Strikes Hawkish Tone

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Euro US Dollar Exchange Rate Rises after ECB President Drops Rate Hike Hints

The Euro US Dollar (EUR/USD) exchange rate is trading higher today after European Central Bank (ECB) President Christine Lagarde stoked expectations for a July interest rate hike.

At the time of writing, the EUR/USD exchange rate is trading at around $1.0558, up roughly 0.2% from today’s opening levels.

Euro (EUR) Boosted Following Hawkish Comments from ECB President

The Euro (EUR) is gaining ground against the US Dollar (USD) this morning after ECB President Christine Lagarde reinforced ECB interest rate hike bets.

On Wednesday, Lagarde reiterated the ECB’s Asset Purchase Programme (APP) ‘should be concluded early in the third quarter’. This reinforced market expectations of an interest rate hike in July and comes as inflation across the bloc surged to 7.5% in April.

Lagarde commented:

‘The first rate hike, informed by the ECB’s forward guidance on the interest rates, will take place some time after the end of net asset purchases…(and) this could mean a period of only a few weeks.’

ECB policymaker Bostjan Vasle echoed Lagarde’s hawkish position, stating that ‘when the circumstances change, the policy response must follow.’

Moreover, Germany – the largest economy in the Eurozone – has confirmed inflation reached 7.4% in April, up from the previous reading of 7.3%.

Georg Thiel, president of the Federal Statistics Office, said:

‘The inflation rate thus reached an all-time high for the second month in a row since German reunification.

‘Energy prices, in particular, have increased considerably since the war started in Ukraine and have had a substantial impact on the inflation rate.

‘Additional factors are delivery bottlenecks due to interruptions in supply chains caused by the Covid-19 pandemic and the marked price increases at upstream stages in the economic process.’

However, the return of Brexit uncertainty is limiting the single currency’s gains.

The UK government has stated that ‘nothing is off the table’ with regards to the Northern Ireland’s protocol.

If the UK government decides to the unilaterally alter the protocol, trade between the two nations may be disrupted. 

US Dollar (USD) Subdued Ahead of US Inflation Reading

The US Dollar (USD) is falling against the Euro (EUR) this morning as USD investors await the latest US inflation reading.

In April, US inflation is expected to decline from 8.5% to 8.1%.

If market forecasts are met, it may relieve some of the pressure on the Federal Reserve to pursue more aggressive interest rate hikes. In turn, this would place pressure on USD exchange rates.

Moreover, an improved risk appetite is weighing on the safe haven ‘Greenback’.

Euro US Dollar Forecast: Will US PPI Undermine the ‘Greenback’?

Looking ahead, the Euro US Dollar exchange rate may be bolstered by the latest US PPI.

The PPI for April is expected to decline from 1.4% to 0.5%. If this prints true, it may weigh on demand for the ‘Greenback’.

Meanwhile, the number of US citizens requesting unemployment benefits is expected to increase by 195K last week. This is down from the previous 200K and thus, may buoy USD appeal.

On the other hand, the Euro may be pressured by the Eurozone’s industrial production for March. Production is predicted to contract by 2%, falling from the previous 0.7% expansion.