11.05.202113:33 Forex Analysis & Reviews: Forecasts for EUR/USD and GBP/USD: Pound may turn down soon. Meanwhile, price pressures are rising in Europe.

Euro continued to trade sideways yesterday. Meanwhile, pound broke above the 41st figure, thereby hitting a new local high.

With regards to the economy, Europe observed a strong increase in inflation, especially in Hungary and the Czech Republic. These two countries were among those hardest hit by the pandemic, but managed to maintain very low unemployment rates.

And now that the time for stimulus payments and support has come, consumer demand is likely to lead to even more active price pressure. In fact, last week, the Czech National Bank already raised its forecasts for price increases and said that reducing the risks of a longer economic downturn allows them to raise rates, plausibly as early as this summer.

As for Hungary, its inflation rate is the highest among EU countries, but core inflation, which excludes volatile categories and food prices, increased by only 3%. Its central bank also raised forecasts, but ongoing government incentives may cause more unprecedented price increases, which is a reason for early rate hikes.

Hence, central banks should pay attention to any changes in prices so as to know whether they should increase interest rates or not. An early rate hike will undoubtedly lead to a rally in euro.

But in the meantime, a lot depends on 1.2150, as a break above it will result in a larger jump towards 1.2180 and 1.2230. Meanwhile, going below the level will lead to a collapse to the 21st figure.

Upcoming macro statistics for Germany and the whole Euro area will help determine in which direction the euro will go. Strong figures will result in a rally, while weak numbers will lead to a decline.

GBP

Pound continued its spectacular rise, following the election results in Scotland. But in the coming days, a strong decline is predicted, mainly due to the upcoming data on budget deficit, which may deal a negative impact on the currency. Analysts project a very huge gap in expenses and revenue, especially amid a number of post-Brexit challenges and struggles in economic growth.

The data will show how much foreign investors are willing to continue to fund UK government spending. Most likely, the figure will be on par with the United States, which is currently experiencing one of the largest trade deficits on record. If there is a sharp jump in trade deficit, then investors can count on a premium when investing in UK assets. This, however, is not to the liking of the Bank of England, which is doing its best to keep rates at minimum levels.

Analysts expect the deficit to double to 6.4% of GDP, mainly due to weak exports caused by Brexit. If it goes higher, then demand for the pound will drop rather sharply.

In the meantime, a lot depends on 1.4155, as going above it will result in a larger jump towards 1.4200 and 1.4240. Meanwhile, going below the level will lead to a collapse to 1.4100, and then to 1.4060 and 1.4015.