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The European Central Bank will meet today to discuss further actions on monetary policy. Many expect that they will maintain the current near-zero rates, as well as remain firm on their conviction that it is necessary to continue buying bonds at an accelerated pace, at least until June this year.
But there are members who believe that it is time to decrease the volume of bond purchases so as to prevent a sharp jump in inflation and overheating of the economy. Unfortunately, it is unclear how the ECB will abandon the PEPP program and return to more standard instruments, so investors are waiting for the members to clarify this.
In terms of inflation, the ECB might follow the path of the Federal Reserve, that is, allowing the indicator to exceed 2.0%. But for the overall policy, the Central Bank will not make hasty decisions, at least until updated macroeconomic projections are released. Therefore, do not expect any serious surge in volatility today.
Going back to bond purchases, the ECB reduced its volume, but continued to monitor and control the yield. All in all, they have spent approximately € 17 billion on bonds since March.
Meanwhile, Germany's 10-year bond yields rose 7 points higher than in March, while Italy's yield hovered around 100 points, which is slightly above this year's lows.
With regards to EUR / USD, a lot depends on the support level of 1.2025, as a break below it will most likely result in a huge drop towards 1.1975 and 1.1920. But if the quote consolidates above 1.2080, the euro will increase to 1.2135, or to 1.2180.
On the topic of coronavirus, Italian Prime Minister Mario Draghi declared that the government's goal for vaccination this month may not be achieved because of some delays brought by insufficient supply and issues about the vaccine. Nevertheless, they are determined to dramatically accelerate the pace of the campaign.
On the bright side, the country's construction sector is recovering, seeing a 1.4% rise in construction volume last February. On a yearly basis, the indicator increased by 3.5%.
GBP
Pound finally traded upwards, winning back all the losses it had yesterday. This happened because of the strong inflation report from the Office for National Statistics, which indicated that CPI this March jumped 0.7% year-on-year, and increased by 0.3% on a monthly basis.
Core inflation, which excludes prices for energy, food, alcoholic beverages and tobacco, also rose to 1.1%. Many expect inflation to spike to 1.5% in the next few months.
Obviously, consumer spending increased after authorities relaxed the isolation measures. Restaurant bookings and job postings also increased, as did traffic and the number of people heading to jobs. Shops and bars also resumed work, which increased activity in the service sector.
With regards to vaccination, UK Prime Minister Boris Johnson said nearly two-thirds of the adult population has been immunized. Hence, quarantine measures may completely end by June 21.
As for GBP/USD, further direction will depend on 1.3945, as a break above it will lead to a sharp rise towards the 40th figure. But if the quote drops below 1.3885, the pound will collapse to 1.3830 and 1.3790.
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