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Since the opening of today's trading day, the euro has moderately declined against the dollar.
Ahead of the European Central Bank's monetary policy decision, which will be published at 11:45 (GMT), market participants prefer a wait-and-see attitude, despite the fact that no drastic changes from the ECB regarding its policy are expected. Most likely, following today's meeting, the European Central Bank will keep the PEPP program unchanged, which allows the central bank to purchase bonds in excess of the usual program of asset purchases in the amount of 20 billion euros per month, and forecasts for economic growth, as well as keep key interest rates unchanged.
Despite the improvement in the outlook for the Eurozone economy, the long-term inflation forecast could remain well below the current target level, economists say, and the need for fiscal support will continue in 2022, despite the fact that the end of the anti-crisis program for buying bonds is scheduled for the end of March 2022.
Most likely, the euro will ignore the results of the ECB meeting. Market participants will focus on the comments of ECB President Christine Lagarde on the prospects for the bank's policy for the coming quarters, as well as plans for financial conditions, which, nevertheless, may become more stringent after 2021 - 2022 amid increased economic activity and higher inflation expectations.
Lagarde's speech and ECB press conference are scheduled for 12:30 (GMT). In its course, a surge in volatility is possible not only in the euro quotes, but also in the entire financial market, if the ECB leaders make unexpected statements. The soft tone of the statements will have a negative impact on the euro. Conversely, a tough tone from ECB officials on central bank monetary policy will strengthen the euro.
Also at the same time (at 12:30 GMT) will also be published consumer price indexes (CPI) for the United States. The indicator is expected to increase by 0.4% (+4.7% in annual terms). The dollar will continue to strengthen if the CPI rises more than expected. The CPI index for April rose to its highest value since 2008, and economists expect that the latest data from the Department of Labor will again indicate a significant rise in May (at 12:30 am also the statistics of jobless claims in the US will be released). The number of applications in recent weeks has dropped to a new low since the start of the pandemic, indicating an improvement in the labor market.
If the data comes out with indicators that exceed forecasts, then they will increase the likelihood of discussing the curtailment of stimulus at the next Fed meeting (June 15-16).
Thus, the beginning of today's American trading session is expected to be extremely volatile, and the greatest volatility among the major currency pairs is expected in the EUR / USD pair.
Meanwhile, the DXY dollar index continues to rise slightly compared to the beginning of this trading week. As of this writing, DXY futures are traded near 90.20 mark, 6 pips above this week's opening price. The DXY has gained 42 points since the beginning of this month.
Many economists expect the Fed to begin phasing out stimulus in the coming months. In their opinion, at a meeting next week, the Fed will announce the start of cutting bond purchases in the 3rd quarter of 2021 and an increase in interest rates at the end of 2022. If this happens, then the real yield on US government bonds may rise, pulling the dollar with it.
