Euro stopped rallying ahead of the ECB meeting this Thursday. Most likely, market volatility will surge if the central bank announces a new strategy on inflation and monetary policy. ,
Last week, ECB President Christine Lagarde said the markets should prepare for new stimulus recommendations, as the central bank needs those to meet their target levels. However, the statements are opposite to what many investors and analysts hoped, since they expected more active measures from the European Central Bank. They wanted an early curtailment of economic support programs, not vice versa.
Accordingly, the rate of euro will skyrocket if the ECB maintains a super-soft monetary policy. ECB Board Member Isabelle Schnabel said that officials need to see sustained price pressures first before considering a change in the policies. Of course, this move could also help flatten the yield curve.
Meanwhile in the US, a report on retail sales was released last Friday, which indicated that the index rose unexpectedly in June, reflecting fairly broad gains across all spending categories. This suggests that price pressure will continue to grow, which will force the Federal Reserve to take action. According to the data, retail sales rose 0.6% in the last month after a downwardly revised 1.7% in May. Excluding autos, sales jumped 1.3%. The overall growth in June beats all estimates by analysts who had expected a 0.3% decline.
Most likely, retail sales are up because of the stimulus from the US government. The reopening of businesses contributed as well. For example, PepsiCo Inc. reported their fastest sales growth in a decade, as consumers returned to restaurants and bars.
Considering this, EUR/USD remained trading in a horizontal channel, but today a lot will depend on 1.1825 because going above it will result in a further jump towards 1.1850, 1.1875 or even to the 19th figure. Meanwhile, if the quote drops to the bottom of the 18th figure, EUR/USD will most likely plunge to 1.1770 and 1.1740.
GBP
Pound is rapidly decreasing in price amid soaring COVID-19 infections in the UK. Most recently, the number of cases has reached January highs, after almost all quarantine restrictions were lifted. This means that the country has not yet approached a normal state, in which new strains of coronavirus will not impose certain risks on the economy.
Already, many large employers in England have announced that they will continue to maintain a limit on the number of workers who can go to the office to work. Goldman Sachs and JPMorgan said they will continue to implement the rule of using masks in their buildings even if the UK government has already lifted it. As of this moment, daily incidence in the country is at 54,000, which is the highest since January 15.
In another note, two members of the Bank of England said last week that stimulus measures may be reduced. This renewed hopes that interest rates will increase much earlier than scheduled. MPC members Michael Saunders and Dave Ramsden said the central bank needs to scale back bond purchases, as well as consider the option of an earlier rollback of stimulus measures.
Going back to GBP/USD, a lot will depend on 1.3740 today because climbing above it will result in an increase towards 1.3710 and 1.3670. Meanwhile, dropping below it will provoke a further downward move, most likely towards the 35th and 34th figures.
