. EUR/USD clings to gains above 1.0800 on ECB's Lagarde - CapitalStreet FX

EUR/USD clings to gains above 1.0800 on ECB’s Lagarde

EUR/USD clings to gains above 1.0800 on ECB’s Lagarde

19 Jan 2023

EUR/USD is clinging to gains above 1.0800 in European trading.

The pair is supported by falling US Treasury yields, which are weighing on the US Dollar amid looming recession fears. ECB President Lagarde voices support for more rate hikes to tame inflation. ECB Minutes eyed.

On Thursday, the speech from the European Central Bank (ECB) President Christine Lagarde will guide investors about the likely monetary policy action in February. Declining energy prices in Eurozone have softened inflation, however, the current inflation rate is still far from the median rate. Therefore, investors should brace for a hawkish commentary from European Central Bank’s Lagarde ahead.

According to economists polled by Bloomberg, the deposit rate will be raised to a peak of 3.25% from its current level of 2% in three steps. The survey shows two half-point hikes at the February and March meetings, followed by a 25 basis-point increase in May or June.

Meanwhile, European Central Bank (ECB) policymaker Francois Villeroy de Gelhaus said on Wednesday, it is “too early to speculate about what we will do in March.” However, he believed that Lagarde’s earlier 50 bps guidance is still valid.

EUR/USD bounces off recent lows in the 1.0770/65 band and manages to regain the 1.0800 mark and beyond amidst the better mood in the risk-associated universe.

Price action around the European currency should continue to closely follow dollar dynamics, as well as the impact of the energy crisis on the euro bloc and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.