- Euro (EUR) snaps three day winning streak
- EZ inflation expected to confirm -0.2%
- US Dollar (USD) pares earlier losses
- US Fed Chair Jerome Powell in focus
The Euro US Dollar (EUR/USD) exchange rate is breaking even after paring gains from earlier in the session. The pair settled +0.3% higher on Monday at US$1.2152, its third straight day of gains. At 09:15 UTC, EUR/USD trades flat at US$1.2152.
German IFO business sentiment improved by more than expected in February even as covid lockdown continued. The headline business climate index rose to 92.4 from 90.3 in January. Tgjs was ahead of the 90.5 forecast. Most of the improvement came from improved forward expectations as businesses look ahead to the recovery rather than the near term lockdown.
Today Eurozone inflation data is due to be release. This is the second reading so it is not expected to cause much movement unless it’s significantly above or below the initial reading of -0.2% month on month.
The US Dollar fell versus all of its major rivals in the previous session amid renewed economic recovery optimism. Boosting the market mood Dallas Fed’s President Robert Kaplan said that he expects the unemployment rate to return to pre-pandemic levels below 4% in 2022.
Today the US Dollar is rising, recovering from earlier losses.
The focus today will be on US Federal Reserve Chair Jerome Powell when he testifies before Congress in a semi-annual event. Whilst this is usually a non-event, this year could be quite different as he will almost certainly be asked about the run up in the bond market.
Yields on government debt have surged to the highest level in over a year as inflation fears rise. This could signal the reflation of the economy. However, should this trend get out of control, the Fed could have to tighten policy faster than the market expected, potentially strangling the economic recovery.
On the other hand, a complacent Fed is just as likely to upset the market. As a result, Jerome Powell will be walking along a very fine line, which the potential to boost volatility in the market.