The Euro was able to break a three day losing streak against the US dollar in last Friday’s trading session after a bullish speech by European Central Bank president Christine Lagarde ensured that further interest rate hikes were on the way.
The European Central Bank needs to keep interest rates high to curb inflation in the medium term Mrs Lagarde said on Friday, signalling more monetary tightening and more pain for those highly exposed to credit.
The ECB slowed the pace of rate hikes this month with a 25-basis-point rise, but Lagarde indicated the cycle was not over and the central bank will keep hiking rates to push the Eurozone towards the target inflation rate of 2 percent.
"We still have to have sustainably high interest rates, so it's a time when we have to really buckle up and look at this target that we have and deliver on it. Our goal is simple and straightforward: price stability. And we have to be totally determined to deliver that." She said.
Markets expect a fresh, 25-basis-point increase at the ECB's June meeting and possibly one more by the end of the summer, followed by rate cuts starting early next year.
"We are heading towards more delicate decisions going forward but we will be courageous, and we will take the decisions that are needed to bring inflation back to 2%. And we will do it, no question about it," Lagarde said.
The Euro was also boosted by comments from Federal Reserve Chairman Jerome Powell who highlighted inflation fears on Friday but also stated that the recent banking crisis, which led to tighter credit standards, has eased the pressure to hike interest rates. Even so, the market’s bets of a 0.25% Fed rate hike in June increased and the calls for a rate cut in 2023 have gone down due to the last week’s upbeat US economics and hawkish comments from various Fed officials.
Looking further ahead today, the main drivers of the EUR/USD currency pair will be the release of consumer confidence figures from the Eurozone followed by a speech from US federal reserve board member James Bullard during the American session.