It is very likely that this week will be hard for the financial markets, which will certainly add volatility to the markets, including the currency one.
Last week, investors continued to assess the more-than-expected optimistic forecasts of the US regulator for the country's economy, employment and inflation, which they believe indicate the likelihood of an earlier recovery of inflationary pressure to the target level of 2% or even higher. In this case, we should expect an earlier start to increase interest rates. This is what actually caused the local appreciation of the dollar and sales on global stock markets, especially in America.
This topic will continue to dominate this week. At the same time, Powell is expected to speak to congressional committees, as well as comments from fellow Fed officials Evans, Brainard, Bostic, Williams, Bullard and Dali. They will be expected to have personal opinions on the prospects for inflation in the United States, which can have a noticeable impact on the dynamics of the dollar exchange rate.
We believe that they will talk about a long period of the Fed's soft monetary rate, trying to calm the markets, but, of course, time will tell whether they will be able to do this.
In addition, our attention will also be focused to the speech of the head of the ECB Lagarde, as well as the release of economic statistics this week — the values of business activity indices in the manufacturing sector of the leading countries in Europe and the United States, figures on orders for durable goods and sales of new homes in the US. There will also be meetings of the Central Bank of Switzerland and New Zealand about monetary policy.
Now, let's go back to the speeches of the FRS members. If they fail to convince investors that interest rates will not be increased earlier than the beginning of 2023, this will possibly lead to a new wave of strengthening of the dollar in the currency markets and continued decline in equity markets, of course, primarily in the United States, which will pull down other world stock markets.
Forecast of the day:
The EUR/USD pair remains in a wide side range of 1.1750-1.1915. If it consolidates above 1.1855 against the background of C. Lagarde's speech, then a local growth to 1.1915 will be very likely.
The USD/JPY pair remains in a short-term downward trend on the back of sell-off in stock markets and growing fears of an earlier start to increase rate in the US. If the pair declines below the level of 104.30, it will continue to fall to 103.50.
