Euro rose slightly on Friday, but then went down again amid insufficient bullish activity around weekly highs. Meanwhile, pound remained under pressure and declined towards another support level.
Unsurprisingly, the firm stance of most Fed members about inflation held back excessive volatility in the markets. Fed Chairman Jerome Powell is convinced that the recent surge in inflation will end soon, even though some politicians question this position and see the need to raise interest rates as early as next year. Apparently, the Fed believes that a fairly significant part, if not all, of the current inflation growth is due to the sharp rise in prices, so once they normalize, inflation will return to its normal value.
New York Fed President John Williams has the same thought and said that inflation would return to 2% in 2022. But other Fed members such as James Bullard, Rafael Bostic and Robert Kaplan are worried about the risks a persistent rise in inflation brings and argued that it would be advisable to start raising rates in 2022.
However, as much as they worry about inflation, rate hikes will not start until the US labor market returns to its pre-crisis state. And most likely, changes in the bond purchase program will take place only this fall. Until this moment, the Fed is unlikely to rush to adjust their programs, especially since there are no objective reasons for it.
As for the Eurozone, data released on Friday shows that consumer confidence in Germany is expected to improve in July, thanks to the lifting of restrictions related to the coronavirus. To be more specific, the index is projected to rise to -0.3 points, which will be the highest value since August 2020. In line with this, economic expectations also jumped, climbing by 17.3 points to 58.4 points.
Consumer confidence also increased in Italy, but this time it hit 115.1 points from 110.6 points a month earlier. Analysts expected it to value around 112.0 points only.
Another important news is the report made by the European Central Bank regarding money supply. According to the central bank, the M3 money supply grew 8.4% year-on-year in May, down from 9.2% growth in April. Analysts had expected it to grow by 8.5%. In terms of the M1 money supply, a 11.6% drop was observed in May, a bit lesser than the 12.3% fall in the previous month.
Going back to the US, data released last Friday show that personal income fell again in May, dropping by as much as 2.0%. This continued decline is a reflection of the cuts made in government benefits. Meanwhile, personal spending remained virtually unchanged, as opposed to the expected 0.4% rise.
All this had a significant impact on EURUSD, but today a lot will depend on 1.1915 because going below it will result in a further decline towards 1.1880 and 1.1850. Meanwhile, rising above 1.1975 will lead to a jump towards 1.2030 and 1.2100.
GBP
Pound remained under pressure after recent reports indicated that consumer sentiment in the UK remained unchanged in June. GfK said the index stayed at -9.0 points, instead of rising to -7.0 points. But this does not mean that confidence will fall again in the next months, as economic growth continues in the country. Most likely, the index lulled because of rising inflation.
Another important report is about retail sales, which posted a 23% growth in June. This is the highest level recorded since November 2016, and is a sign that the vaccination program is successful in pushing the UK economy up.
Going back to pound, a lot will depend on 1.3930 today because a rise above it will result in a jump towards the 40th figure. Meanwhile, a drop below 1.3870 will lead to a deeper correction towards 1.3830 and 1.3785.
