EUR/USD – Euro edges higher on hawkish Lagarde comments

• Lagarde hints at further rate hikes
• US unemployment claims rise
• EUR/USD is drifting

ECB’s Lagarde warns inflation still too high

In the weeks prior to the ECB rate decision in March, ECB President Christine Lagarde practically promised an oversize rate hike of 50-basis points. The ECB delivered the goods as promised, but I suspect that Lagarde may have received some criticism for being too transparent. Lagarde has been more discreet, but her consistently hawkish message leaves little doubt that another rate hike is coming at the May 4th meeting. Earlier today, Lagarde said that inflation remains too high and monetary policy has some ways to go.

The question facing the ECB, it appears, is not whether to raise rates next month, but by how much. ECB Chief Economist Philip Lane said on Wednesday that the Bank would raise rates but said that the size of the increase would be data-dependent. Goldman Sachs has also said that the upcoming rate decision is a close call between a 25 and 50 basis-point hike and has revised upwards its terminal rate forecast to 3.75%, up from 3.50%.

In the US, today’s releases were a disappointment. The Philly Fed Manufacturing Index slipped to -31.3 in April, versus -23.2 prior and -19.2 anticipated. This marked the lowest level in almost three years, at the start of the Covid pandemic. As well, unemployment claims rose to 245,000, up from 240,000 prior, which was also the market consensus. The rise is not significant, but the markets will be quick to speculate about the robust labour market showing cracks if upcoming job numbers also miss expectations.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.0967. Above, there is resistance at 1.1102
• There is support at 1.0858 and 1.0723

inflation
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fed
monetary policy