The global currency markets was full of events last week. The United States published economic data, such as the values for manufacturing inflation, the values for unemployment benefits applications, as well as the number of open vacancies. At the same time, positive economic signals came from the University of Michigan, which contributed to the continuation of positive dynamics in the stock markets. Investors were not even fully intimidated by the rise in US treasury yields, which resumed in the wake of the final adoption of a new aid package in the country, amounting to $ 1.9 trillion.
It is clear that the general picture indicates that the expected economic growth, supported by hopes that the COVID-19 will be brought under control, is stronger than the risk of overheating the US economy in the near future. This is noticeable reflected in the dynamics of growth in the yield of US Treasury government bonds. Last Friday, the yield of the benchmark 10-year treasuries reached the highest level of 1.637%, since the collapse at the beginning of the pandemic and this Monday morning.
It is worth noting that investors most likely believe that the growth in yields amid the ongoing sales of Treasuries will only be temporary, or they will have time to get the chance to earn profit by buying risky assets and stocks, especially since Fed Chairman J. Powell is just going out of his way to calm the markets, repeatedly saying that the regulator will allow the economy to overheat and inflation to rise for the sake of economic recovery and subsequent growth.
As for the currency market, the scenario also depends entirely on market participants' general mood. It should be noted that the rising Treasury yields amid updated demand for company shares failed to significantly support the USD rate. It only effectively prevents it from falling under the weight of a significant dollar supply in the financial system.
Assessing the current situation, we believe that last week's general trends will remain this week. Among the most important events, the Fed's result on the monetary policy meeting can be highlighted. We believe that its monetary exchange rate will remain unchanged, and Powell's speech at the press conference will convince the markets again that the regulator will continue to act on its plan to support economic growth against the risk of a noticeable increase in inflation.
In addition, we should also pay attention to the publication of data on industrial production and retail sales, construction permits issued in the US, consumer inflation figures in Europe and in Canada, and lastly, the final monetary policy decision of the Bank of England and the Central Bank of Japan.
Forecast of the day:
The EUR/USD pair is trading below the level of 1.1960 awaiting the Fed's final monetary policy decision. The growth in US Treasury yields is putting pressure on it; hence, it will most likely consolidate in the range of 1.1865-1.1960, if it holds below 1.1960.
The GBP/USD pair is also trading in the 1.3800-1.4000 range in expectation of the Fed and the Bank of England's decision on monetary policy. It is very possible that it will remain in this range today, swinging up and down.