FX.co ★ Forecasts for EUR/USD and GBP/USD: Euro and pound to trade upwards due to the sharp drop in Treasury yields. Xi Jinping calls for an economic integration

Dollar declined very sharply on Monday after Treasury yields in the US fell to multi-week lows.

Apparently, this happened because Fed members forecast that any surge in inflation will only be temporary, so the monetary policy of the central bank will remain as soft as it is right now. But in the long term, when all citizens are finally vaccinated from COVID-19, inflation will accelerate strongly, plausibly exceeding 2.0%. In such a case, the Fed will inevitably stop most, if not all of its assistance programs.

In the meantime, the current figures of the economy are not enough to ditch the emergency stimulus. Therefore, the Fed will continue to keep interest rates near zero in order to guarantee recovery from the ongoing recession.

To be more specific, the Fed will continue buying $ 120 billion in Treasury and mortgage bonds every month, at least until they see significant progress on inflation and employment. And judging by the latest data, these targets may be achieved sooner.

On a different note, China's president, Xi Jinping, called for greater global economic integration. He warned against breaking off relations, asking the US and its allies not to "command" other countries.

"International affairs must be negotiated. States should not impose their rules on others, and the world should not follow the unilateral approach of just a few countries, "Xi said.

China also said it is now open for businesses, as well as on working for improved relations with the United States. This news is not very significant for the foreign exchange market, but globally, it could influence economic growth.

On the topic of foreign exchanges, the euro will continue to increase in price as long as trading remains above 1.2050. It could even hit 1.2110 and 1.2180. But if the quote drops below 1.2050, the euro will collapse to 1.1990, or to 1.1950.

As for the pound, going above the 40th figure will set off a larger increase towards 1.4060 and 1.4120. But if the quote drops below 1.4000, the pound will collapse to 1.3950, or to 1.3890.

With regards to macro statistics, Germany reported a decline in production, pointing to low economic activity as the main reason. Fortunately, employment remained stable, so the unemployment rate was only 6.0%.

The European Central Bank also published its current account balance, revealing that the surplus dropped to € 26 billion, much lower than its figure a month earlier. Apparently, surplus in goods fell to € 32 billion, while the surplus in services decreased to € 11 billion.

Eurostat also published a report on construction volume, indicating that the figure slipped to 2.1% this February.