Investors are cautious ahead of Fed meeting


16 March 2021

Andrey Maslov, analyst of the FINAM Group of Companies

On Tuesday, March 16, EUR / USD rallied 0.04%, essentially holding its position ahead of the two-day Fed meeting. The DXY dollar index is growing by 0.05% and is at 91.882.

The recent strengthening of the dollar began amid falling yields on government bonds. The yield on 10-year Treasury bonds currently stands at 1.6073% after rising to 1.6420% at the end of last week.

The Fed is not expected to make any changes to its current monetary policy during tomorrow’s meeting. However, it is possible that the regulator will make adjustments to economic forecasts for GDP, unemployment and inflation, as well as present a new chart of forecasts for the key rate and comments on the timing of the reduction of the asset acquisition program. However, investors are worried about a possible rise in inflation amid the final adoption of the US $ 1.9 trillion fiscal stimulus package and optimism for a faster-than-expected global economic recovery from the Covid-19 pandemic. In addition, investors’ attention will also be focused on the Fed’s comments on the increase in Treasury yields.

The single European currency remains below $ 1.20 as vaccination in Europe faces further challenges. Germany and France were added to the countries that suspended the AstraZeneca vaccine yesterday. Also, from today in some federal states of Germany, lockdown is resumed and stores are closed, and in Austria, the start of the third wave of coronavirus and new restrictive measures were announced. In general, the situation with vaccinations in the Old World remains difficult, which, of course, affects both the mood in society and the behavior of investors.

It is also worth noting that this week, in addition to the Fed’s decision on the interest rate, the Bank of England will meet on Thursday, and the Bank of Japan will meet on Friday.

As for macroeconomic statistics in the US, the index of business activity in the industrial sector from the New York Empire State for March was 17.4 points, which is significantly higher than analysts’ expectations of 14.5 points, and February results of 12.1 points. The balance of the capital account for January was $ 106.3 billion against $ 8 billion in December 2020, in fact, indicating an increase in net capital imports at the beginning of the year. Net purchases of US securities by foreign investors in January fell to $ 90.8 billion from $ 121 billion in December.

In Germany, the index of wholesale prices for February was published, which increased by 1.4% (m / m) against growth in January by 2.1% (m / m).

Today in the United States will become known data for February on retail sales, indices of export and import prices, industrial production, capacity utilization. In addition, the NAHB Home Market Index for March and inventory for January will be released.

In the eurozone and Germany will be published indexes of economic sentiment from the ZEW for March.

The EUR / USD rate, after a significant correction at the end of February, continues to fluctuate below the level of 1.2000 euros per dollar. Stochastic lines have come out of the oversold zone, however, their movement has slowed down significantly, and their reversal is possible, which indicates favorable conditions for selling in the short term.

This information is not investment advice.

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