Euro rallied on Monday, but then stalled around 1.1920. And yesterday, considering that there were no macro statistics, all attention was focused on European Central Bank President Christine Lagarde, who said that tightening monetary policy earlier than scheduled will jeopardize the ongoing recovery of the Eurozone economy.
To date, economic recovery is strong, thanks to mass vaccinations and sharp decrease in COVID-19 incidence. And in summer, a stronger surge in retail sales and consumer spending is expected, which will lead to more powerful GDP growth and inflation.
Also, there are no problems with consumer prices, but Lagarde said that further growth, which is looming due to increased demand and consumer spending, could lead to an even stronger inflationary jump in the future.
Lagarde also pointed out that bond purchases will raise inflation by about 1.2%, and push real GDP growth up by about 1.8%. Inevitably, these statements resulted in a brief jump in EUR / USD, but euro failed to hold on to the achieved prices.
As for the United States, the Federal Reserve Bank of Chicago reported that national activity rose to 0.29 points in May, from -0.09 points in April. However, it did not help dollar regain its position, even though they coincided with the statements made by Fed Chairman Jerome Powell last week.
In any case, Dallas Fed President Robert Kaplan said GDP will grow by approximately 6.5% in 2021, with unemployment rate falling to 4-4.5%. St. Louis Fed President James Bullard also assured markets and said there is nothing to worry about, as the central bank is prepared for the risks of rising inflation.
And later this afternoon, Fed Chairman Jerome Powell will deliver a speech, where he may discuss possible actions on monetary policy. In his last speech, Powell said inflation will return to 2.0%, when the supply imbalance disappears. He noted that the Fed must be ready to respond on both sides and remain flexible.
Markets are awaiting whatever statements Powell will say, but in EUR / USD, a horizontal channel is emerging, where the key levels are 1.1925 and 1.1850. Going above 1.1925 will result in a further jump to 1.1960 and the 20th figure, while moving below 1.1850 will lead to a collapse towards the bottom of the 18th figure.
GBP
Volatility was rather high on Monday because traders were anticipating the results of the Bank of England meeting, which is scheduled today. One of the hot topics is UK inflation, which peaked in two years. Investors are betting that the central bank will raise interest rates much earlier than scheduled to flatten the yield curve, not to mention curb inflation. They project rates to hike by 20 basis points in December 2022, however there are still differing opinions within the committee.
In fact, it is only chief economist Andy Haldane who sees risk in inflation, so most likely, during the meeting, he will again point out the possibility of inflation spiraling out of control. If other members join him this time, demand for pound may increase significantly. But there is a chance that all committee members will vote to keep interest rates unchanged.
For GBP/USD, a lot depends on 1.3940 and 1.3880 today. Going above 1.3940 will result in a jump towards the 40th figure, while moving below 1.3880 will lead to a further collapse to 1.3835 and 1.3790.
