Inflation recovers in the US amid low interest rates, which confirms the beginning of economic recovery after the coronavirus pandemic. Such led to investors gradually returning to risky assets such as the euro, and after a slight correction, it is likely that demand for the euro will increase further.
A report from the US Department of Labor said that the rise in prices for goods and services led to a sharp jump in consumer prices in the United States. Pent-up demand growth after the pandemic is showing itself to the full, but further impetus may fade away. Thus, the report said that CPI in July rose 0.6% from the previous month, which exceeded the forecasts of economists, who had expected an increase of only 0.3%. As for core inflation, which excludes volatile food and energy prices, the index gained 0.6%, up from a forecast of 0.2%. A quarter of the increase in the general CPI was due to an increase in gasoline prices, which rose by 5.6%.
Interesting statements were also given by US Secretary of Treasury Steven Mnuchin yesterday, which noted that although the administration supports the reduction in the capital gains tax, which Donald Trump is so strongly promoting, a separate bill that will regulate capital growth is needed for its adoption ... Mnuchin expressed his firm conviction that the tax cut would help the economy, but did not go into details. In any case, the stock market took this news as positive, which led to a rise and almost return to the highs of this year.
Another report was also published yesterday, which revealed a sharp increase in budget deficit in the United States. The main reason for the large growth is a decrease in tax revenues and increase in federal spending, at which the US government has already spent $ 5.6 trillion as of the moment, 51% higher than the previous year. Meanwhile, budget revenues have decreased by only 1% and to $ 2.8 trillion, but these payments were received pre-coronavirus pandemic. Hence, a same or higher tax revenues is not expected in the coming months, but in the new fiscal year, losses is certain to be gained.
Boston Fed President Eric Rosengren also gave a series of warning signals, claiming that the recent slowdown in economic activity will continue, which clearly will not benefit the bulls of risky assets. The main problem remains to be the coronavirus, and its continuous spread will certainly affect the pace of economic growth. Rosengren also noted that the recovery of the labor market, and, accordingly, the entire economy, depends on whether there will be further fiscal support for households, so it is now very important that the Fed adheres to further stimulating monetary and fiscal policies.
Meanwhile, for the technical picture of the EUR/USD pair, demand for risky assets will gradually slow down, if the quote fails to break out of the resistance level of 1.1845. To build a new upward trend, the bulls need to protect the support level of 1.1770, where it will be possible to draw the lower border of the new bullish channel without any problems. However, a return to the level of 1.1715 will jeopardize this, and will bring the market back to the power of the bears. In such a scenario, the quote may update the lows of 1.1645 and 1.1580.
