Euro and pound continue to trade upwards, especially since demand for the dollar remains low in the markets.
This was evidenced by the MSCI index, which jumped to a record high last Friday after the US dollar dropped against other currencies. Apparently, traders are encouraged by the positive outlook for the world economy, even though US bond yields continued to rise.
Aside from that, upcoming US stimulus also hurts the dollar. In fact, volatility has dropped to its lowest level since July 2020.
Many banks also continue to revise their forecasts, emphasizing that global economic growth should be very strong over the next six months. And if this happens, the position of the US dollar will most likely weaken against most of the world's currencies.
In line with this, US Treasury Secretary Janet Yellen said that G7 countries need to act more confidently on stimulus policies to support economic recovery. Her advice was not completely clear, but the main point is that governments should use higher costs so that the world economy could return to its previous growth rates as quickly as possible. Yellen also noted that the United States is supporting an increase in IMF borrowing (by approximately $ 500 billion) as part of an additional assistance to support developing countries.
With regards to macro statistics, consumer expectations in the US deteriorated, as a result of which pressure on the dollar returned, thereby halting the currency's rally against the euro and the pound. Clearly, consumers are affected by the lack of consensus between Republicans and Democrats on the new economic stimulus.
The University of Michigan said the consumer sentiment index fell to 76.2 in February, much lower than the expected 80.8 points. In terms of inflation, it grew 3.3% year-on-year in February, while the 5-year inflation expectations remained unchanged at 2.7%.
As for EUR / USD, bulls are currently targeting 1.2150, as a break above will surely provide the market with an influx of new major players. And with that, the euro could jump towards 1.2190, or further at 1.2230. But if the quote drops to 1.2110 instead, EUR / USD will move to 1.2070.
GBP
The British pound hit new all-time highs after the latest report showed that economic indicators in the UK were much better than expected. According to the Office for National Statistics, GDP grew by 1.0% in the 4th quarter of 2020, much higher than the forecasted 0.5%. But despite the fairly active rebound in GDP, the level last year is still lower (by 6.6%) than in 2019. Not surprisingly, the slowdown in economic growth was largely driven by the services sector, which is still paralyzed by the quarantine measures implemented due to the COVID-19 pandemic.
The service sector grew by only 0.6%, while the manufacturing sector grew by 1.8%. As for industrial production, it rose by 3.3%.
In terms of monthly statistics, GDP grew by 1.2% in December 2020, after falling by 2.3% in November. The indicator improved because during this time, the service sector expanded by 1.7% as many consumption-oriented industries resumed operations.
As for GBP / USD, breaking above the 39th figure will most likely lead to a jump towards 1.3960 and 1.4010. But if the quote drops to 1.3860, the pound will move down towards 1.3820.
Today, it is necessary to pay attention to reports on industrial production and foreign trade surplus of the Euro area. Production is expected to contract by 0.4%, while the foreign trade surplus is projected to be € 25.3 billion.
