Euro hits resistance at 1.10

The Euro continues to run into resistance at the 1.10 mark against the US dollar during the early European session on Thursday. This follows on from the overall retreat from the recent April 14 highs of 1.1075 as the US Dollar recovers on bets the Federal Reserve (Fed) will continue raising interest rates. 

Due to the recent rounds of strong economic data from the US a 25 point rate hike is all but guaranteed next month by the Fed which was also backed up bya couple of Fed officials who also favour additional rate hikes to bring inflation down to the central banks target rate of 2 percent.

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, said he believes it would take some time for inflation to return to target and that there’s still work to be done with monetary policy.

Also jumping on board was St. Louis Federal Reserve President James Bullard who noted that interest rates would need to continue to rise in the absence of clear progress on inflation although caution would be warranted over fears of pushing the US into a recession.

The European Central Bank is also poised to deliver further rate hikes which should somewhat underpin the Euro and save it from any substantial further losses and analysts from one of the world’s largest investment banks believe that next month’s planned rate rise is still up in the air with regards to size.

“We view the choice between 25 basis points and 50 basis points in May as a close call given receding banking risks, growth resilience and ongoing strength in underlying inflation” Analysts from Goldman Sachs said.

However, the investment bank is, for the moment, working under the assumption that the ECB will push rates higher by 25 basis points at the May, June and July meeting.

“Reasons for a more gradual speed of tightening from here include that the recent banking stresses are likely to leave some mark on bank lending, we expect some cooling in sequential core inflation in coming months, and the uncertainty around the global outlook has risen,” the analysts said.

Looking further ahead today, the main driver of the EUR/USD currency pair will be the release of a monetary speech from ECB president Christine Lagarde and the focus of traders will be any hints from the ECB boss about the size of the rate hike next month.