FX.co ★ Forecasts for EUR/USD and GBP/USD: ECB to follow the path of the Federal Reserve. US inflation has exceeded the projections of economists.

Dollar traded downwards on Tuesday despite seeing better-than-expected inflation data.

To be more specific, US CPI rose by 0.6% this March, which is slightly higher than the 0.5% forecast of economists. Growth took place amid the gradual recovery of many economic indicators, as well as on the extensive vaccination program for the US population, which allows many citizens to go to work and businesses to return to normal operation.

And most likely, inflation will jump even more as many Americans will soon increase their spending, thanks to government support programs. At the moment, core CPI is already 0.3% higher than its previous figure.

That being said, the only problem that remains is unemployment, which, until now, shows a very high rate.

"The US economy will grow more rapidly this year. However, the labor market will take longer to recover, " said Eric Rosengren, president of the Boston Fed. "We need to be more patient and wait for tangible signs of rising inflation. We should not raise interest rates just because of improving forecasts, " he added.

As for Europe, business sentiment in both Germany and the whole Euro area worsened this April, but thankfully did not affect the market very seriously. The indicator fell to 70.7 points, which is much lower than the expected 79.0 points. This is the first drop recorded since November 2020.

Despite that, macroeconomic projections in the EU are better this month, rising slightly to 48.8 points. However, it is short of the forecasts because analysts expected it to reach 53.0 points. This scenario is not a surprise though because many European countries reintroduced strict isolation measures in order to curb the rapid spread of the coronavirus.

But why is today's outlook much better than before? Apparently, businesses have already adjusted to constant lockdowns, so exports, as well as consumption, no longer collapse to very low levels.

On a different note, the European Central Bank is reported to be following the path of the Federal Reserve in terms of handling inflation. It is said to be allowing prices to temporarily rise above 2.0%, which also means that the current monetary policy will remain as is for quite a long time.

As a result, the scenario in EUR / USD should continue, at least until the bulls manage to bring the price above 1.1920. Such a breakout will lead in a large jump towards 1.1990 and 1.2050, but if the bears manage to win back 1.1935, the euro will collapse to 1.1920 or lower price levels.

Going back to statistics, wholesale prices in Germany rose for two consecutive months and at the fastest pace in four years. Obviously, this happened because of the recent oil rally. The report indicated that the index increased by 4.4% year-on-year and by 2.3% in February. Prices for petroleum products, meanwhile, jumped by 13.7% over last year.

As for Italy, industrial production grew at a slower pace than before, but did not affect the market very seriously. According to the report, the index gained only 0.2% this February, which is clearly lower than the expected 0.7% growth. On a yearly basis, industrial production fell 0.6%.

Today, another report on industrial production will be released, but this time it will be for the whole Euro area. Analysts forecast output to dip by 1.1% month-on-month, after rising by 0.8% last January. But if the indicator shows growth, the euro will strengthen and hit monthly highs.

GBP

High volatility continues to persist in GBP / USD. Despite that, bullish traders are still holding at 1.3720, since a break above it will result in a jump towards 1.3825 and 1.3875. Accordingly, going below the level will result in the pound collapsing to low price levels.

Talking about the UK economy, recent reports say it is growing at a slower pace than expected, mainly because of the recently-imposed restrictions that continue to hold back activity. According to the data, GDP increased by only 0.4% this February, lower than the projected 0.6%. Analysts are expecting better figures in the coming months, as soon as vaccination picks up in the country.