Published on 27.05.2022 15:53

The euro looks set to end the week on a high note against the US dollar, continuing a trend that has been going for the last 2 weeks over expectations that the European Central Bank will soon begin embarking on an interest rate hiking with investors predicting around100 basis points of tightening before years end.

The ECB is predicted to kick off the rate hiking cycle starting in July followed by at least 3 more rate hikes of 25 basis points each. The timing of the lift-off in July, has been well communicated by doves and hawks within the ECB’s governing council and so it just remains a question of by how much.

Due to the publicity surrounding the potential rate hikes, the news has pretty much been priced into the market and indeed the Euro which leaves the European currency little room for further currency appreciation resulting from rate hike expectations. Additional risks in the form of the prolonged issue around the Northern Ireland Protocol (Post-Brexit arrangement concerning the movement of goods from the UK to the EU) and the ongoing conflict between Russia and Ukraine which is starting to bite into the European economy.

“We see a higher chance of some recovery in the dollar from the current levels rather than an extension of the drop, and with a lot of ECB tightening now in the price, the room for the euro to benefit further from the monetary-policy factor appears limited.” Said analysts from ING.

Looking further ahead today, there is little in the way of economic news although during the American session we will see the release of the Michigan consumer sediment index from the US which should create some volatility in the EUR/USD currency pair.

Market participants will also keep an eye on the geopolitical scene for any development and any escalation in the conflict between Ukraine and Russia.


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