Market players are still factoring in the minutes from the last Fed meeting. They are puzzled by the fact that some members of the regulator consider it appropriate to discuss the timing of reducing the quantitative easing program. The volume of the bond-buying program is $120 billion per month, and the balance sheet of the Fed heads to $8 trillion. However, judging by the activity of investors, this news did not attract bulls back to the market. Federal Reserve officials assured once again investors that the bank would not tighten monetary policy in the near future. The regulator is sure to make a shirt amid considerable improvement in the US macroeconomic indicators and stable growth, which is unlikely to happen before next year.
Meanwhile, fresh data continues to show a gradual recovery of the US economy. Thus, the Markit PMI index in the manufacturing sector, as well as in the services sector, rose in May, exceeding market expectations. Traders react to strong statistics also waiting for some comments from the Fed. The commitment to a soft policy forces investors to opt for risky assets, which is bearish for the US dollar.
If this week's reports on the US economy are positive and demonstrate a steady recovery, the US dollar will continue its downward trend with a potential to reach the multi-month low of 89.50.
Market sentiment is largely influenced by inflation concerns. Therefore, in the coming sessions, the attention of investors will be focused on the US inflation data, which will be released a little later.
If the central bank maintains its soft policy, risk appetite is likely to increase.
Most economists believe that the pressure on core inflation will ease. Their outlook for the recovery of the US economy is getting more optimistic. For example, a survey by the National Association of Business Economists (NABE) showed that the economy will expand to 6.7% this year compared with the 4.8% forecast in March.
The consumer price index will jump to 2.8% in the last three months of the year on an annual basis, and then decline to 2.4% in the fourth quarter of next year, the survey showed.
According to a third of respondents, employment in the US should return to pre-pandemic levels by the end of this year or at the beginning of the next year. In previous surveys, the recovery would take much more time. The unemployment rate is likely to be 5.6% at the end of this year and in the next year, it will amount to 4.3%.
The EUR/USD pair incurs losses due to low liquidity in a thin market. On Monday, the quote resumed downward movement and as there was little activity among dollar bulls. However, it managed to rebound quickly. The euro was able to gain momentum, moving again above the level of 1.2200.
The EUR/USD pair will remain dependent on the US dollar and the general mood in the market until new drivers appear.
A move above 1.2204 could bring the euro to Friday's highs of 1.2240.
The GBP/USD pair once again made an attempt to consolidate at 1.4200 but pulled back due to mixed sentiment. Today, traders are awaiting the speech of the governor of the Bank of England. The official said that the regulator would not tighten monetary policy until there is clear evidence of progress in the economy. The bank will primarily pay attention to unemployment after the cancellation of payments. Inflation expectations remain subdued. The growth of the UK economy in the medium term may slow down.
The movement of the euro and the pound sterling above the highs may indicate the rising risk appetite. It is sure to have a big impact on the further dynamic of the market.