Barclays Capital on Monday recommended taking a long position on EUR/USD this week, as the inflation reports in the eurozone are likely to boost the expectations over another interest rate hike by the European Central Bank (ECB) in the coming months.

We prefer a long EUR/USD. For those concerned about euro area peripheral risks we recommend a long EUR/GBP position, the Euro Exchange Rate News reported, citing a note from Barclays Capital.

The euro fell 0.3 percent to 1.4431 against the greenback in early New York trading. The euro strengthened to fresh 15-month high of around $1.4486 last Friday.

EUR/GBP rose 0.2 pct on the day to 88.60 pence earlier on Monday, its highest since late October 2010. It rose on expectations that interest rates in the euro zone would continue to be higher than those in the UK.

Analysts said that interest rate differentials between the Europe and the US, after the ECB’s hike last week, would continue to lend support to the single currency.

The ECB on Thursday raised the interest rates by 25 points to 1.25 percent, its first rate hike since July 2008.

The central bank’s president Jean Claude Trichet last Thursday said that inflation prospects to remain key for further rate hikes. Trichet said the central bank will continue to monitor very closely all developments with respect to upside risks to price stability.

Eurozone’s annual consumer price index (CPI) is due on Friday, with analysts’ expecting core CPI to go up by 0.1 percent to 1.1 percent in March.

Our economists expect the data to show that prices accelerated by more than expected in France and E17 in March. If realised, we expect some investors to revise forward their expectation for the timing of further ECB tightening,” the report said.

Barclays Capital said that the US consumer prices to show a surprise fall in March, although markets expect the inflation remain unchanged at 0.5 percent in March.

“In contrast, with our economists forecasting US CPI to surprise to the downside, the Fed's position as the laggard in the hiking cycle is likely to be reinforced, said the report.

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