Euro heads towards 20 year loww

The U.S. dollar continued to strengthen against the Euro to a new two-decade high in today’s trading session after U.S. inflation numbers released yesterday led to speculation that the US federal reserve will be more aggressive with their rate hikes.

The U.S. consumer price index, which is a key indicator of consumer spending climbed 8.3% on a yearly basis in April, data released on Wednesday showed, easing from 8.5% in March but still higher than analysts’ expectations for a figure of 8.1%

While this number suggested inflation may have peaked in the U.S., it- still remains stubbornly high meaning the Federal Reserve's current monetary policy plans to aggressively raise interest rates in the months ahead will remain intact.

The market has fully priced for at least a half percentage point increase to Fed funds at each of the next two Interest rate decisions, on June 15 and July 27. Some believe they may even move forward with a 70-basis point rate hike which is currently underpinning the US dollar.

“Rhetoric from the Fed remains very hawkish; the message seems to be that the policy rate needs to be taken to neutral as quickly as possible and then the Fed will see if it needs to do more not less tightening.” Said analysts from ING

The US Dollar Index, which tracks the greenback against a basket of six other currencies is also powering ahead and it recently hit 104.243, its highest level since December 2002.

As we can see on the chart, the Euro is perilously close to reaching a 20 year low of $1.03.69 which it last hit in 2002 and I believe it is only a matter of time before this happens although the bull are going to put up some stiff resistance before the bears ultimately prevail.