The new week in world markets began with the continuation of the short-term rally in the stock markets. It seems that the investors are confident that not only the ECB will slow down with its idea to stop stimulus measures in September this year, but the American regulator, through its new leader, J. Powell, may also make it clear that the rates of rate hikes in the United States may slow down.
Yesterday's speech by M. Draghi showed that the European regulator does not intend to turn a blind eye to the braking of inflation against the backdrop of economic growth. "Although the strong momentum in the eurozone economy has clearly increased our confidence in the inflationary outlook, patience and perseverance with regard to monetary policy are still necessary," Draghi said during his speech at the European Parliament in Brussels. (Dow Jones Newswires)
The head of the ECB made it clear that it is still necessary to implement incentive measures, despite the acceleration of economic growth. He showed concern about the drop in inflation to 1.3%, which is well below the target level of about 2.0%.
On this wave, the euro was under pressure, but there was no noticeable decrease, as the focus of the market has already shifted to the speeches of the head of the Fed, J. Powell, before the American parliamentarians, which will be held today and on Thursday. They can be programmatic and will have a significant impact on the US dollar rate.
The markets also have a hope that the new head may adjust the Fed's rate to continue the cycle of raising interest rates. Do not make it noticeably more aggressive, citing the fact that Powell himself was previously a supporter of a cautious approach to the process of raising interest rates. On this wave on Monday, the US stock market resumed its growth, and government bond yields declined.
In our opinion, such a position is not justified. Too many reasons exist for not just continuing a slow rate increase, but perhaps even intensifying this process. The continuation of economic growth against the backdrop of a strong labor market, rising inflation and wages may lead to overheating of the economy in the future and cause a new recession. The Central Bank understands this, and, of course, Powell himself, too, so we believe that the former course of J. Yellen will be preserved.
Forecast of the day:
The EUR / USD currency pair is consolidating in the range of 1.2265-1.2350 in anticipation of the speech of the head of the Fed, J. Powell. If in his speech, he confirms the current policy of the Fed on tightening monetary policy, one should expect a local fall of the pair to the lower boundary of the range, the breakthrough of which may cause a further decline to 1.2200.
The GBP / USD currency pair is trading without any changes in expectation of Powell's speech. The harsh tone of his speech may cause the pair to fall to 1.3925.