The European Central Bank will meet tomorrow to discuss further actions for the EU economy. But many expect that they will take a similar path as the Federal Reserve's, that is, allowing inflation to exceed 2.0%.
However, there is also a huge possibility that the central bank will increase the volume of bond purchases, which could undermine economic recovery. Therefore, investors are waiting cautiously for the upcoming statements from ECB President Christine Lagarde.
Lagarde might state that the Central Bank will maintain favorable financial conditions until the coronavirus crisis is over, but it will not solve the problems as it is far from clear how the ECB will abandon the PEPP program and return to more standard measures. The Federal Reserve is not in danger as it has presented rough guidelines for how and when they are going to act. For example, Powell declared that interest rates will not rise until 2023, and inflation is allowed to go beyond 2.0%.
Nevertheless, the decision of the ECB will be based on how the EU economy emerged from the COVID-19 pandemic.
With regards to loans, European banks are expecting tighter credit standards and net demands this second quarter, especially since the criteria for approving them eased a bit in the first quarter. If this happens, economic growth may accelerate faster.
Right now, macro statistics are doing good. For example, Germany released a report on producer prices, indicating that they rose 3% year-on-year last March, which is the largest increase recorded since November 2011. On a monthly basis, the index gained 0.9%.
Unfortunately, the data did not affect the market much, so EUR / USD remained at its current level. But going above 1.2047 today could set off an increase towards 1.2110 and 1.2180, while slipping below will result in a collapse to 1.1990 and 1.1945.
With regards to the United States, everything is doing great as COVID-19 vaccinations continue to be carried out. More than 50% of the country's adult population has already received one dose of the vaccine, and now, the turn has come to the population aged 16 and over. However, even if around 28 million doses are delivered every week, demand continues to outstrip supply, deterring vaccinations across much of the country.
GBP / USD
The pound traded downwards yesterday even though the latest labor market reports show better-than-expected figures. According to the UK Office for National Statistics, unemployment fell to 4.9% this February, instead of the expected 5.1% increase. To be more specific, 1.67 million people were jobless, which is 50,000 lower than the previous quarter. However, the figure might increase when the support programs are removed, and it will take some time for the sector to recover completely.
Issues between the UK and the EU are also putting pressure on the labor market.
As for the GBP/USD pair, a lot will depend on 1.3945 as a break above it will result in a sharp rise towards the 40th figure - to 1.4065 and 1.4110. But if the quote drops below the level, the pound will collapse to 1.3890 and 1.3840.