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Yesterday, the euro soared sharply on the hawkish comments of ECB President Christine Lagarde. Will the EUR/USD pair be able to stay at the peak and continue to grow further?
At the beginning of the week, the single currency received an unexpected boost from European Central Bank President Christine Lagarde.
The official said that the ECB will raise rates in July in accordance with the forecast recommendations and may raise the indicator to zero by the end of September.
If inflation does not stabilize at 2% in the medium term, European policymakers will have to continue the gradual normalization of rates upward.Lagarde predicted that interest rates in the eurozone could reach a neutral level at the end of the third quarter.
Recall that the ECB's deposit rates have been negative since 2014. Currently, the indicator is at -0.5%.
Earlier, Lagarde repeatedly stressed that the pace of monetary policy tightening in Europe will be slower than in America, due to the fact that the EU and US economies are in different positions.
However, yesterday Lagarde's tone was much more hawkish than before. This pushed the EUR/USD pair to the highest level in almost a month – 1.0687. Following the results of trading, the euro rose by 1.17% against its main competitor.
The weakening of the dollar provided additional support for the European currency. The greenback rate fell by 0.85% at the beginning of the week. This pushed it further away from the almost 20-year peak above 105, marked in the middle of the month.
The greenback lost its position under the pressure of the returning demand for risky assets. The growth of the US stock market is now being promoted by expectations of the lifting of quarantine in Shanghai, as well as the comment of US President Joe Biden, who promised to revise tariffs on Chinese imports.
The dollar is also falling against the background of a decline in US Treasury bond yields from multi-year highs.
The aggressive course of the Federal Reserve in relation to its monetary policy has already been taken into account by the market. Therefore, in the near future we are unlikely to see a yield rally again, which could act as fuel for the dollar.
Meanwhile, the ECB's hawkish tactics, on the contrary, are just beginning to help the euro. The EU is now expected to raise interest rates by more than 110 bps by the end of the year.
If we take into account the ECB's intentions to raise rates to a neutral level by the end of the third quarter, we can assume that at one of its next meetings, the central bank will risk raising the indicator by 50 bp at once.
A more aggressive ECB rate should support the single currency in the short and medium term.
In the foreseeable future, the EUR/USD pair may continue to rise on Lagarde's recent comments and reach the 1.0770 mark.The upward trend is indicated by the technical data on the daily chart. Now the indicators are confidently moving up within positive levels, reflecting constant customer interest.
As for the long-term prospects of the EUR/USD pair, now the euro bulls are seriously aiming for the 1.10 level. However, it may take a long time for the single currency to rise to this peak.
Also, do not discount the fact that the Fed continues to lead in political expectations, and the risk of recession in Europe remains high. These factors can still support the dollar and calm the euro's ambitions.
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