Euro bounced back on Wednesday amid expectations that the European Central Bank will continue to adhere to a soft monetary policy.
But quite recently, the central bank announced an updated strategy, which says target inflation is now 2%. It is unclear how long this will be implemented, although more details will be explained during today's meeting.
Of course, whatever decisions the members make will significantly affect the market, especially regarding bond purchases. Many have called for the central bank to scale back its volume, as the EU economy is lagging behind the US economy. Even so, the ECB is not yet willing since an early curtailment of support programs could halt economic recovery.
As mentioned above, the ECB will announce its decisions today, which will be followed by a 45-minute press conference. If ECB head Christine Lagarde hints at a future rate hike and policy change, demand for euro will increase sharply. But if she talks about how inflation has not yet gone beyond what is permissible and how the economy needs stimulation, demand for euro will continue to decline.
Meanwhile in the United States, incumbent Fed Chairman Jerome Powell is nearing the end of his term, but reports say he has every chance to win the position again in the next term. But if US President Joe Biden decides to change officials, then Lael Brainard could become the next Fed chief.
Other Fed members such as Randal Quarles and Richard Clarida are also close to completing their terms.
With regards to macro statistics, Biden talked about the ongoing growth in inflation, but dismissed fears that it will spiral out of control as economic recovery continues. He also stressed that while the service industry is improving, restaurants and other hospitality businesses may take longer to do so.
Recently, US reported that consumer prices rose 5.4%, which is the largest increase in more than 12 years.
But there are those who believe that inflation must be curbed so as not to seriously damage the economy. Senate Minority Leader Mitch McConnell said the indicator is now "off the charts," so it is unnecessary to pick up new stimulus measures. Republicans are also blaming Biden and Democrats for labor shortages in restaurants and other low-wage areas, arguing that unemployment benefits, which now exceed the minimum wage thanks to government support measures, are causing Americans to be less active in returning to work.
Talking about EUR/USD, a lot depends on the bottom of the 18th figure today because climbing above it will result in an increase towards 1.1830 and 1.1850. And if volatility rises much more than expected, then the pair may reach 1.1875 and 1.1940. But if the quote drops below 1.1780, then EUR/USD will collapse to 1.1760 and then to 1.1720 and 1.1680.
As for GBP/USD, a lot depends on 1.3755 because breaking above it will result in a jump towards 1.3790 and 1.3830. If the pair declines, bullish traders should focus on protecting 1.3680.