FX Market Overview for February 22, 2021
The semi-annual speech by the Chairman of the Federal Reserve System of Jerome Powell regarding the state of the economy and monetary policy will be one of the main events of this week. The widespread decline in the dollar is a sign that investors expect cautious comments. The United States has made progress in vaccination of the population: about 1.7 million vaccinations from coronavirus are made daily, and 13% of the population has already received the first dose. It was not without failure: many states (including New York) were faced with supply problems, but in many respects it was associated with bad weather conditions, which last week detained about 6 million doses last week. In the coming weeks, the issue of supply will not be as sharp, since the production rate is growing, and the control supervision of the quality of food and medicines will consider the possibility of using Johnson and Johnson vaccine (which involves only one vaccination).
These moments are important because they strengthen the prospects for the rapid restoration of the US economy. However, even on this background, the central bank has almost no reason to adjust the policy, especially in the context of the growing profitability of governmentobaliations. The growth of yield and an increase in the angle of inclination of the curve - the two main events that occurred in the financial markets this year. From January 1, the rate for ten-year papers increased from 0.91% to 1.39%. This dynamics is caused by the growth of inflation expectations and concerns about the actions of the Central Bank.
So, now the question is how all this will affect Powell's statement. In the current situation, the head of the Central Bank has every reason to continue to adhere to a stimulating monetary policy, since the growth of the profitability of the public debt tightens financial conditions by increasing mortgage and consumer loans. As part of his speech in the Economic Club of New York, held two weeks ago, Powell clearly made it clear that the inflation burst is temporary, and even if prices are growing in the coming months, "it will not have a lot." He also made the saving interest rates on the nearby level until the economy reaches the state of complete employment, and inflation will not reach 2% (which guarantees the stability of the economic recovery). Since then, macrohotism has been ambiguous since then: retail sales are restored, but employment growth rates did not meet expectations, and the number of applications for unemployment benefits returned to monthly maxima.
Against this background, we expect Powell to understand the significance of growing prices and confirms the commitment of the central bank incentive monetary policy. It is clearly premature to talk about the folding of the repurchase of assets. "Pigeon" Comments should increase pressure on the dollar, as a result of which the USD / JPY pair can go to 104.50, and AUD / USD to 0.80.
A strong indicator of the confidence of the business circles of Germany allowed a single currency to continue to strengthen in relation to the US dollar the third day in a row. However, compared to other currencies, the growth of the euro was modest, since investors are concerned about the sensitivity of the ECB to a strong currency. On Monday, the regulator said nothing regarding currencies, but stated that he carefully observes the growth of profitability. The rate of vaccination in the eurozone is clearly not reaching the United States and the UK. Germany (the largest economy of the region) vaccinated only 4% of its population, and figures for France, Spain and Italy are even lower. Previously, we suggested that these failures will lead to the backlog of the euro from other currencies, which we observed on Monday.
Pound updated many years of highs in relation to the US dollar and closed at the annual peak for the euro. Investors with enthusiasm reacted to the plan of Prime Minister Boris Johnson to mitigate quarantine throughout England. Considering that more than a quarter of the country's population received at least one dose of the coronavirus vaccine, the number of new cases of infection decreased from the January 68 thousand to 9.8 thousand (fixed on Sunday). Schools will open on March 8, and on March 29, the open air events will be allowed. The plan assumes five-week pauses between the stages, and therefore restaurants, shops and pubs may not open until spring. On Tuesday, data on the labor market of Great Britain will come out, and if employment growth accelerated (as the components of business activity indices imply), we will finally see the return of the pound.
Australian and New Zealand dollars continue to lead the currency market. The S & P rating agency has raised New Zealand's credit rating with AA to AA +, thanks to which the national currency rate reached a 34-month maximum in relation to the US dollar. S & P notes:
"New Zealand is restored faster than most countries with a developed economy, since it has coped with COVID-19 better than most other powers."
Australian dollar has strengthened against this background, since the country has as well as promising prospects as New Zealand. This week a meeting of the reserve bank of New Zealand will be held, and there is every reason to expect from him more "hawk" rhetoric.
The USD / CAD pair has updated a three-year minimum, but the percentage of the Canadian currency increase was modest; Weak macroction is compensated by high oil prices. Canada also lags behind the vaccination: only 3.8% of the population received the first dose. Supplies remain the main problem. That is why the country has invested in European factories, fearing the American ban on exports. However, the factories do not keep up with demand, and the EU recently announced the preparing export control, which can even more detain the supply of the drug.
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