FX.co ★ Powell's speech clarified dollar's chances of resuming growth are minimal. Overview of USD, EUR, and GBP

Federal Reserve Chairman Jerome Powell did not reveal much at the House Financial Services Committee hearing, reaffirming the Fed's commitment to adaptive policies, and did not express any concerns about the continued growth of assets.

It is not worth waiting for the Fed's tightening of monetary policy - this is the main result of the two-day hearings in Congress. Markets received a clear signal for continued growth - demand for risky assets will remain consistently high. The dollar (as the main defensive currency) will be under pressure in the current environment.

EUR/USD

One of the key points that directly affect the ECB's assessment of the current situation is the issue of prices. Inflation rose unexpectedly in January, but most commentators agree that the rebound in prices is mostly technical rather than fundamental.

If consumer prices continue to rise, the market may well conclude that the economy, as a whole, is recovering simultaneously with the rise in prices, which will be a reason for the ECB to curtail the buyback programs. But, firstly, the ECB members themselves declare that the rise in prices is technical, and the expected revision of the inflation forecast in March upwards will be of a one-time nature. Second, the preconditions for price increases are very unstable, since no wage growth has been observed. On the contrary, the dynamics of wages are negative, since employers predominantly adhere to agreements to reduce wages instead of layoffs, that is, they keep jobs, but at a lower rate.

As a result, there are still very few factors that would confidently push prices up. Vaccination rates remain weak, and there is significant heterogeneity across the eurozone.

The pressure is exerted by the growth of raw materials prices, but at the same time the selling prices of enterprises decreased in January, that is, there is no pressure on consumer prices from this side either.

At the moment, the markets are dominated by the idea that the ECB will raise its forecasts at its next meeting on March 11, which will contribute to the strengthening of the euro, but at the same time it will confirm its intention to maintain the terms of TLTRO, that is, it will not voice the idea of an earlier withdrawal from the stimulus programs. The market assesses this position positively because it believes that the pace of economic recovery will be higher if support is maintained.

As a result, there is a situation in which a rise in prices leads to an increase in yields, but at the same time, the threat of an exit from a favorable regime is reduced. This interpretation is in favor of the euro. The break of the 1.2170 resistance has strengthened the bullish momentum. There is no reason to believe that the move could stop before the next level of 1.2285 is reached, where a consolidation zone could form either before the test of the 1.2349 high or before a reversal downward if the dollar finally gets bullish momentum in Congress.

GBP/USD

Johnson's plan to gradually lift the restrictions did not make a noticeable impression on the markets, as it quite accurately corresponded to the expectations that were formed the day before after the leak from the government.

The employment report turned out to be more revealing, which shows that average wages in the last 3 months have grown faster than in most developed economies.

The Bank of England at the key meeting on March 18 will not announce an imminent exit from the stimulus programs, but the yield on 10- and 30-year UK bonds shows even higher growth rates than the yield on similar securities in the US or Germany.

The pound, most likely, has not yet exhausted its upside potential, despite a certain technical overbought. The test of the maximum at 1.4377 is more likely to take place, however, it is still impossible to confidently predict the exit beyond the resistance. The high rates of vaccinations and the possibility of an earlier exit from quarantine have already played out, so the likelihood of a technical pullback is growing, but long-term fundamentals remain bullish.