Yesterday was rather quiet for the euro and the pound due to the Presidents' Day weekend in the US. Representatives of the Federal Reserve System made no remarks on the future of monetary policy. The International Monetary Fund study was the only thing that garnered notice. The results indicate that central banks in Asia may need to increase interest rates further if inflation does not soon show definite signs of returning to the target level.
The main indicator that excludes volatile categories of goods, the so-called core inflation, still exceeds the target level, according to economists at the IMF, so policymakers should maintain caution despite the slowdown in overall inflation. It's important to note that the United States and the eurozone countries both currently experience a similar situation.
Asia has undoubtedly profited from the strengthening of local currencies and the drop in global pricing for goods and services, but the information on the underlying variables is still unclear. Many worry that price increases may be a result of China's economy being opened up. "This means that central banks should act cautiously, reaffirming their commitment to price stability. Indeed, they may need to raise rates further if core inflation does not show clear signs of returning to the target level," the IMF said in a statement. "Given the risks to inflation in Japan, greater flexibility regarding the level of long-term bond yields will help avoid abrupt changes in monetary policy."
This type of warning is being sent at a time when several important central banks are returning to their hawkish stance under ongoing pricing pressure, as I indicated above.
Several Federal Reserve officials stated this week that significant rate hikes are once again being contemplated in light of higher-than-expected inflation. European politicians made comparable demands. The Australian central bank increased borrowing costs earlier this month to a 10-year high after benchmark prices increased by 6.9% in the fourth quarter, above the 6.5% projection of experts. Core inflation also remained above 6% in India, which prompted calls for additional policy tightening.
The resumption of inflation growth will threaten Asia, according to the most recent IMF projections, as this year's economic growth is predicted to increase to 4.7% from 3.8% in 2022. An increase in inflation will undoubtedly follow from strong economic development.
Regarding the EUR/USD technical picture, the pair's pressure has marginally lessened. Breaking above 1.0720 will cause the trading instrument to move to the 1.0760 level and stop the bear market. Above this point, you can easily reach 1.0800 and update to 1.0840 in the near future. I anticipate some activity from significant buyers if the trading instrument drops merely below the level of 1.0660. If no one is present, it would be preferable to hold off on opening long positions until the 1.0615 minimum has been updated.
On the technical analysis of GBP/USD, the bear market is still present. Bulls must advance above 1.2070 to restore equilibrium. The only way to increase the likelihood of a recovery to the area of 1.2125, after which it will be feasible to discuss a more abrupt movement of the pound up to the area of 1.2170, is if this resistance fails to hold. After the bears seize control of 1.2015, one might discuss keeping pressure on the trading instrument.