- EUR/USD is looking to regain 1.0900 resistance as the ECB may not pause policy tightening after the summer.
- The Euro is pleased with bullish bets for CY2023 as the ECB will continue to raise interest rates.
- According to the consensus, investors should brace for a decline in US GDP in the fourth quarter of CY2022.
The EUR/USD the pair is looking to extend the recovery near the critical resistance of 1.0900 as the chances of hawkish bets by the European Central Bank (ECB) increase dramatically. The major currency pair is looking to extend its upward journey further as expectations of continued policy tightening by the ECB after the summer have strengthened.
Previously, ECB President Christine Lagarde and other policymakers indicated that the central bank would peak interest rates at 3.25% by the end of the summer.
ECB policymaker Gediminas Simkus said on Tuesday that the ECB should continue to raise rates by 50 basis points (bps) amid rising wage pressures, according to Bloomberg. Simkus went on to add that reaching the maximum interest rate before the summer “may be unlikely,” noting that a strong core of consumer Price index (CPI) shows that their fight against inflation is not over yet.
Meanwhile, the Street has started to provide bullish projections for the euro for CY2023, given the fact that the ECB will continue to raise interest rates. According to economists at CIBC Capital Markets, “The improved macro backdrop comes with the ECB now detailing that “rates will still need to rise significantly at a steady pace to reach levels that are restrictive enough to ensure inflation returns to 2% in time. medium term goal.”
Market sentiment appears neutral as the S&P500 remained choppy in Tuesday’s trading ahead of US gross domestic product (GDP) data. However, the weakening of 10-year US Treasury yields to almost 3.45% and above US dollar index (DXY) at 101.50 support suggests that risk-on currencies could remain on a positive trajectory going forward.
Consensus sees annualized GDP lower at 2.8% compared to the previous release of 3.2%. The indication of a decline in overall economic activity could accelerate fears of a recession in the United States.