Major events of the upcoming week
Last week we saw an increase in volatility on financial markets. Investors reacted to the results of the Fed meeting, which did not meet the expectations of a certain part of investors.
The regulator left unchanged the main parameters of monetary policy and forecasts for interest rates. Despite this, the market is still betting on the growth of inflation and earlier withdrawal of the stimulating policy by the FRS. Against the background of the Fed's inaction and active sales, the yield on US government bonds continues to grow, providing quite strong support to the dollar. As a result, we are witnessing a paradoxical situation in the market - the American currency continues to strengthen due to large-scale stimulus measures in the amount of 1.9 trillion dollars and the Fed's soft monetary policy.
Even more nervousness in the market at the end of last week was caused by reports of an increase in the incidence of COVID-19 in the EU countries. Italy was again forced to close its borders. France has tightened quarantine measures in eight regions of the country. Tightening of quarantine measures in other EU countries were discussed. Considering the above, investors will be closely watching changes in preliminary PMI data for manufacturing and services in the EU countries.
UK - labor market report
Despite optimistic market expectations in January and February of this year, the UK has complied with strict quarantine measures. The gradual easing of restrictions began only this month, therefore, experts do not expect positive data from the forthcoming report on the labor market. Unemployment is projected to rise from 5.1% to 5.2%, while average wage growth will slow from 4.7% to 4.1%. If the experts' forecasts come true, the British pound sterling may come under pressure locally.
EU - preliminary data on manufacturing and services PMI in the EU
Reports of an increase in the number of COVID-19 cases in the EU countries appeared only at the end of last week, therefore, most likely, they will not affect the preliminary data on PMI in the manufacturing and services sectors. Experts predict an increase in indicators both in the region as a whole and in individual EU countries. The market will take this into account, and the reaction to the publication of statistics can be quite restrained. It is worth expecting a strong decline in the European currency only if the main indicators turn out to be significantly lower than the forecasted values.
USA - speech by the head of the Fed Jerome Powell
Last week Jerome Powell tried to minimize all speculation about the earlier winding down of the Fed stimulus program. This provoked further growth in the yield of American Treasuries. The yield on 10-year bonds hit a new 14-month high.
Next week investors will be expecting comments from the head of the Federal Reserve regarding the development of the situation on the debt securities market. Signals about a possible regulation of the yield on debt securities may exert very strong pressure on the US currency, but many experts still believe that the regulator will not intervene in the situation, and the yield on 10-year government bonds may reach 2% in the future. Considering the above, the US dollar may continue its upward rally against its main competitors.