20.01.202109:03 Forex Analysis & Reviews: Review of EUR/USD and GBP/USD on January 20

Yesterday, the pound and the euro demonstrated a slight, but still a sharp growth and it was practically without a pullback. All this happened without any macroeconomic statistics as well as significant news background. The most interesting thing is that each of them had their own reasons to rise, which is not connected in any way.

For example, the pound, which continues to be near a multi-year high and is suggested to take a correction, still rose. This behavior is driven by growing optimism. It can be noted that this is unusual, as there is a growing business dissatisfaction in the UK associated with the concluded trade agreement with the European Union. The most common reason for outrage is the dramatically increased bureaucracy, which both increases costs and creates other barriers to exporting goods and services to content. In general, the competitiveness of British companies has sharply decreased. Based on this, the simple conclusion is that the Bank of England will be forced to further soften its own monetary policy, particularly by reducing the refinancing rate. However, today's inflation data is expected to show an acceleration in consumer price growth from 0.3% to 0.6%. Taking any steps to ease monetary policy amid rising inflation is not the most reasonable step, so the Bank of England will at least delay this measure until at least the end of February. This is the reason why the pound grew. It also gives a hint as to how the pound will behave today. If the growth is due to the expectation of an inflation growth, then the pound's strength will be limited after today's publication of the data. It is quite possible that the pound will return to the level of 1.3700. Locally, it can break through it, but only temporarily.

Inflation (UK):

In regards to the European currency, everything is somewhat more interesting. It has been actively declining in recent days, and yesterday's growth is more like a purely technical rebound. At the same time, such a turn resembles preparation to further decline. The reason for which will be today's inflation data. Formally, the rate of decline in consumer prices should remain unchanged: the current rate of their decline is -0.3%, which is dragging for three months. In other words, today's data should show that the rate of deflation is still the same for four months now and deflation lasts for the fifth month in a row, which is definitely not great.

Nonetheless, the most important thing is that tomorrow will be the first meeting of the European Central Bank's board members this year. The extremely depressing situation with consumer prices may become a reason for further easing of monetary policy, which is exactly what investors fear. In general, the prospects for a single European currency are disappointing, although some large-scale collapse is not expected. There is a high possibility that the euro will decline to the level of 1.2100. All the most interesting things will happen tomorrow after the ECB announces its plans for the current year. After all, the European regulator has recently expanded its stimulus measures, and so, we should not expect that a new increase in the quantitative easing program will be announced immediately. Rather, such a step should be expected within the next three months.

Inflation (Europe):