Demand for risk assets surged after the Federal Reserve said it would keep a super-soft monetary policy. The central bank also cited excellent progress on COVID-19 vaccinations, as well as on the fiscal policy from the current administration. Macroeconomic projections were also revised upward, pointing to a much stronger and faster economic growth.
In fact, indicators for economic activity and employment are already showing quite good growth, contrary to past expectations. And even though the sectors hardest hit by the crisis remain weak, recovery is underway. The Fed also mentioned that inflation, although still below 2.0%, is outperforming forecasts.
Unfortunately, risks are still high due to the ongoing public health crisis. But the challenges are no longer as serious as last year, when everyone is unprepared.
In that regard, the Federal Reserve said it would keep interest rates at 0-0.25%, at least until the labor market reaches target values. At the same time, inflation should moderately go beyond 2.0% in order to compensate for the previous years.
The volume of bond purchases were also kept the same, that is, at least $ 120 billion a month. Current support programs will also be maintained because according to Fed Chairman Jerome Powell, he and his colleagues are not yet ready to consider early easing of measures. He pointed out that many people are still unemployed, and that there is no robust growth in wages despite persistent claims of deficits in some sectors of the economy.
As mentioned earlier, all this led to a surge in demand for risky assets, which is why the euro soared and hit 1.2135 yesterday. Bullish traders need to keep the price at this level if they do not want the currency to drop to 1.2055. If they succeed, the euro has a high chance of moving towards 1.2180 and 1.2240.
Meanwhile for the pound, going beyond 1.3920 will lead to a further growth towards 1.3970. And if the bulls manage to push the pound higher, the quote may reach 1.4020 and 1.4065. If not, it might go to 1.3920, where a break below may lead to a collapse towards 1.3860 and 1.3800.