Euro may hit 1.15

The Euro is expected to climb significantly against the greenback as the year unfolds and may return above 1.15, however, near-term Dollar strength will continue to frustrate any major recovery for some time yet with interest rate rises playing a significant part.

The Scenario will begin this week when the US Federal Reserve announce their latest interest rate decision which could see the central bank leave rates on hold, breaking many months of consecutive rises.

Market analysts are closely monitoring the decision, which could significantly impact the exchange rate dynamics between the Euro and the U.S. Dollar.

Economists at ING suggest that the Federal Reserve is likely to maintain the current interest rate level, opting for a cautious approach although James Knightley, Chief International Economist at ING, believes the Fed will likely signal a rate hike being likely in July.

 "The Fed wants to see 0.2% month-on-month or below CPI readings to be confident inflation will return to 2%. We aren't there yet, so if they do hold rates steady, as we predict, it is likely to be a hawkish hold with the door left open to further rate hikes if inflation doesn't slow, July is clearly a risk." he said.

Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE, says the Fed meeting comes as the U.S. dollar rebounds from the impact of the regional banking crisis earlier this year.

He notes that central banks, including the Federal Reserve, remain frustrated by the persistence of core inflation with both the RBA and BoC surprising this week with rate hikes.

This frustration, combined with concerns about inflation credibility, could lead to prolonged late-cycle dollar strength.

Turner suggests that EUR/USD could hover around 1.06/1.07 for the next one to two months, with potential for a breakthrough based on clear evidence of U.S. disinflation or weak activity data influencing the Fed's decisions.

Looking ahead today, the main drivers of the EUR/USD currency pair will be the release of the monthly budget statement for the month of may from the US which is unlikely to cause any significant volatility in the currency pair.

Traders may choose to sit on the sidelines and await the release of key CPI numbers from Germany and the US due to hit the market tomorrow.