The US Fed and Wall Street banks released bold economic forecasts yesterday, predicting a significant growth in US employment over the next three years. If this happens, the decline from past recessions will be fully offset.
According to the forecasts, millions of workers will return to the labor market soon. However, if it does not happen, the US will enter a recovery phase, in which wage growth will lag far behind the pace of economic recovery and production.
Yesterday, Fed Vice Chairman Richard Clarida said the current economic crisis is very different from before, as it was caused not by economic problems, but by a natural disaster. Once the pandemic dies down, demand for services will skyrocket, and entertainment, travel and tourism companies will return to hiring, which will push the country's unemployment rate down. Fortunately, the US economy is now more resistant to the virus, so the risk of another lockdown is unlikely. Clarida also said that most of his colleagues have already revised their forecasts into positive in the medium term.
However, there are still pessimists who believe that many jobs are lost forever, and businesses are destroyed. As a result, they do not expect a sharp recovery in the labor market in such a short time. In any case, the Fed believes the unemployment rate will fall to 5% by the end of this year, to 4.2% in 2022 and 3.7% by the end of 2023.
And like the Fed, Goldman Sachs also released positive forecasts for the US. They project the unemployment rate to fall to 4.8% by the end of 2021, and then return to pre-crisis levels by the end of 2023.
In another note, the ECB will have a press conference today, during which its president, Christine Lagarde, may talk about the need for further economic stimulus, along with changes in the monetary policy. Most likely, the expected easing of restrictions could lead to a recovery in prices, especially if demand also increases.
In terms of inflation, there is a high chance that the ECB will ignore the expected spike this year, as it will most likely be temporary. In addition, the bank is focusing on data in the medium term, not in the short term. Therefore, such a scenario will not influence the decisions of the bank in any way, especially regarding its monetary policy.
As for the German economy, forecasts say it will grow this year amid increasing exports. However, it will return to pre-crisis levels only by next year.
In particular, the Federation of German Industries (BDI) said it will grow by 3.5% this year, after shrinking by about 5% in 2020. Clearly, COVID-19 and the implementation of lockdowns have severely disrupted economic activity. But fortunately, this year, exports are expected to grow by 6%, after collapsing by 11% last year. However, the BDI believes it will not be possible to return to the pre-crisis levels this year, as the chances of achieving this will be possible only in the first half of 2022.
With regards to EUR / USD, the key level today is 1.2225. If the ECB announces that it will not change the monetary policy, the euro could grow to 1.2280 and 1.2345. But if the bears are able to push the euro down to 1.2175, EUR / USD will drop to 1.2135 and 1.2080.
Demand for the pound increased sharply yesterday after the Bank of England said it will not change its monetary policy.
Many had expected that interest rates would drop to negative levels in February, but yesterday, Andrew Bailey allayed these concerns and said the Central Bank is not yet ready to take such measures.
Such a decision is very good news for traders. However, at the same time, reports emerged that the cost of transporting goods across the UK has increased due to Brexit. The growth was observed in many services, from health certificates to new taxes and additional documents. Only 6% of firms told the Bank of England that they are fully prepared for a new relationship with the EU, so the headaches of transport companies are yet to come.
As a result, exports could decrease by around £ 25 billion this year, due to weak demand and increased bureaucracy, which will lead to a drop in GDP by 1.1%.
But despite that, GBP/USD is still trading upwards, in which it could even break above the 37th figure. The pound will only decline if the bears manage to push the quote below 1.3640, as such will inevitably drop the pair to 1.3590 and then to 1.3505.