EUR/USD Outlook: Fed, ECB Call for More Hikes to Tame Inflation

• The ECB might continue raising rates aggressively in May if inflation does not slow.

• Core service inflation in the eurozone could become entrenched due to growing salaries.

• Traders are also awaiting next week’s US inflation data.

Today’s EUR/USD outlook is bullish. According to ECB policymaker Klaas Knot, if core inflation does not go down by May, the European Central Bank may continue its streak of significant interest rate increases.

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Last week, the European Central Bank (ECB) raised rates by 5050 and signaled a similar move for the next month, although it left options open for its meeting in May. Some believe that meeting will likely see a 25- or 50-basis-point hike in rates.

Knot, governor of the Dutch central bank and a prominent policy hawk, advised the ECB to slow rate increases only once it observed underlying inflation, which excludes energy and food costs, begin to decline.

With cheaper energy, Knot predicted that headline inflation had peaked and may decline more quickly than the ECB had anticipated in its December estimates.

Inflation on core goods should begin to decline, and supply limitations will be removed.

However, he warned that core service inflation could become entrenched and further increase due to growing salaries.

Traders were also awaiting next week’s US inflation data and absorbed remarks from several Federal Reserve officials who forecasted gradual interest rate increases.

Fed’s John Williams stated at a Wall Street Journal event that increasing the fed funds rate to a range between 5.00% and 5.25% seems like a very reasonable assessment of what needs to be done this year to reduce the supply and demand imbalances.

EUR/USD key events today

Investors will pay attention to the EU summit and initial jobless claims data from the United States. The employment data will give more insight into the US labor market.

EUR/USD technical outlook: Tight consolidation above the 1.0700

The 4-hour chart shows EUR/USD trading in a range after failing to break below the 1.0700 key psychological level. This comes after a strong bearish move, with the RSI also pointing to strong bearish momentum below the 50-mark.

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The price is also getting closer to the 30-SMA, which might act as resistance. If this consolidation pauses the bearish move, we might see it continue when the price breaks below 1.0700.

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