Image © European Central Bank

UniCredit Bank forecasts further Euro gains against the Dollar that will bring new year-to-date highs above 1.10.

The Milan-based pan-European lender says the U.S. Dollar might build on the previous week's losses that followed news U.S. headline inflation plunged to +5.0% year-on-year from +6.0% in February.

The deflationary trend was underscored by a fall in U.S. PPI for March.

"EUR-USD is thus positioned to hit new YTD highs beyond 1.10," says Roberto Mialich, FX Strategist at UniCredit Bank in Milan.

The Dollar extends a trend of depreciation as investors increasingly believe the Federal Reserve will cut interest rates in the second half of 2023 in as the economy falls into recession.

The Euro has meanwhile been supported by expectations for further European Central Bank interest rate hikes in response to a flow of better-than-expected data releases and a rapid decline in natural gas prices.

"The tone remains bullish on this pair and the options market also indicates more EUR strength: the risk-reversal rate remains on an upward trend and is just barely negative at present," he adds.

The Euro to Dollar exchange rate rose 2.55% in March 2023 and is a further 1.0% up already in April, the pair's high is located at 1.1075.

For 2023 the exchange rate is up 2.47%.

"A further EUR/USD rally up to above the new YTD high of 1.1075 thus looks in the offing, in our view, with 1.12 as the following target on charts and risks being tilted to the upside at least in the near term," says Mialich.