EUR/USD sees recovery to near 1.0900 as ECB to continue rate hikes beyond summer

The EUR/USD pair aims for a recovery extension to near the critical resistance of 1.0900 as the odds of hawkish European Central Bank (ECB) bets are soaring dramatically. The major currency pair is looking to extend its upside journey further as the ECB's expectations of the continuation of policy tightening beyond summer have strengthened.

Earlier, ECB President Christine Lagarde and other policymakers stated that the central bank would reach an interest rate peak by the end of summer at 3.25%.

As reported by Bloomberg, ECB policymaker Gediminas Simkus said on Tuesday that the ECB should continue with 50 basis points (bps) rate hikes amid growing wage pressures. Simkus added that reaching the peak policy rate before summer 'may be unlikely' and noted that the strong core Consumer Price Index (CPI) shows that their battle against inflation is not over yet.

Meanwhile, the street has started delivering bullish projections for the Euro for CY2023, considering that the ECB will continue raising interest rates further. According to economists at CIBC Capital Markets, “The improved macro backdrop comes as the ECB now details that ‘rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.’’

The market mood seems neutral as S&P500 remained choppy in Tuesday’s trade ahead of the United States Gross Domestic Product (GDP) data. However, weakness in the 10-year US Treasury yields to near 3.45% and in the US Dollar Index (DXY) to 101.50 support indicate that the risk-perceived currencies could remain in a positive trajectory ahead.

According to the consensus, the annualized GDP is seen lower at 2.8% vs. the prior release of 3.2%. An expression of a contraction in overall economic activities might accelerate recession fears in the United States.