ECB Set Hawkish Tone

Hawkish comments from ECB members support euro

EURUSD continues to recover from recent drops. The main currency pair broke above the 1.05 mark today. Euro is trading almost 1% higher against the US dollar. Such a good showing of EURUSD is partially driven by weak USD, that is the second worst performing G10 currency today.

However, EUR strength also plays a role in today’s EURUSD gains. Klaas Knot, head of Dutch central bank and ECB member, provided a lift for the common currency with his hawkish comments. Knot said that a 25 basis point rate hike in July is highly likely but would require a decision on QE to be made in June. Moreover, he said that a rate hike of 50 basis point magnitude cannot be ruled out this year if ECB fails to get inflation under control. Market is already pricing in 100 basis points of tightening from ECB this year.

It should be noted that ECB minutes will be released this Thursday. The latest ECB meeting was seen as a rather dovish one, thanks to comments from ECB Lagarde during press conference. However, minutes may not need to confirm this view. If ECB members discussed a need for quicker rate hikes in April, EUR may remain bid, especially against G10 currencies other than US dollar.

EURUSD is testing an important resistance zone, near 1.05 area. In case of break higher, the next targets for bulls will be 1.0575 and 1.0630 areas. Source: xStation

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