Since the previous meeting, the yield on 10-year US government bonds has increased significantly. The reason was the growth of inflationary expectations of financial market participants. However, Jerome Powell remains unwavering.
The Fed is reluctant to respond to rising Treasury yields, unlike the ECB. The rejection of regulation will contribute to the preservation of volatility in the market, analysts say. Movement is allowed both in the direction of further growth and in the direction of decreasing yields.
Traders continue to evaluate the results of the FOMC meeting. The trend in the financial markets can be formed within a few days or even weeks. The first reaction to the Fed's comments was a drop in the dollar, but the next day we see the opposite trend. During the US session on Thursday, the dollar index increased its growth. The 91.50 mark was successfully broken upwards, hinting at the possibility of buying the dollar. The falling oil also does not speak in favor of the dollar's decline.
In general, the rise in the dollar is associated with a new jump in the yield of Treasuries, which rose to 1.74% for the first time since January 2020, increasing by about 10 basis points per day. It is worth noting that in response to this, the yield on government bonds in the eurozone also increased. Markets are showing concern about uncertain inflation forecasts.
"Is there any reason to fear that the rise in inflation now may turn into something more sustainable?" – ask the analysts of Rabobank.
On Thursday, the yield on Germany's 10-year bonds hit its highest in three months, at minus 0.269%, rising about 2 basis points.
ECB President Christine Lagarde explained today that the regulator will not react to temporary surges in inflation and will oppose growth in profitability if it starts to outpace the economic recovery.
For the main currency pair, we saw a clear struggle for the previously missed level of 1.20. Yesterday's statements from the Fed did not allow the euro to go below 1.1950 against the dollar. However, the situation is still ambiguous. The rebound of the dollar drove the euro lower. Given the overbought Stochastic, a downward movement with the target at 1.1880 and then to 1.1780 is possible. The expected trading range is between the support level 1.1860 and the resistance level of 1.2000.
A "bullish" scenario is also not excluded. Attention remains at 1.20. A breakout and consolidation above the level of 1.1970 will cancel the bearish trend and send the EUR/USD pair up.
The outlook for the dollar is mixed. As a result, it may return to a downward trend in relation to the basket of competitors. UBS believes it is likely to weaken as interest rates remain close to zero and the global economy recovers.
"The Fed remains committed to keeping the short end of the yield curve low, and this is a prerequisite for our forecast of a weakening US dollar as the global economy gradually breaks out of the constraints caused by the pandemic," analysts wrote.