The European Central Bank has decided to increase bond purchases in order to counter the ongoing rise in bond yields. It should take effect for three months, or at least until the EU economy is ready to digest higher borrowing costs.

That said, ECB chief economist Philip Lane remarked on Tuesday: "Our goal is to make sure that the yield curves, which play an important role in determining the general terms of financing, do not outpace the economy."

He added that inflation will be allowed to exceed 2% since for a long time, inflation in the EU has lagged as compared to other countries such as the United States.

Accordingly, interest rates in the bloc will remain at its current level for quite a long time.

Many lawmakers also believe that economic recovery will accelerate soon, thereby expressing strong economic forecasts. They project that EU GDP will grow by 3.8% this 2021, with household savings reaching more than € 300 billion.

In the meantime, EUR/USD will be influenced by the upcoming Fed conference, during which the decisions on US monetary policy will be announced. Many expect the bank to maintain a super-soft policy, which means that there will be no rate hikes until the central bank fulfills its targets (i.e. full employment and inflation, which moderately and steadily exceeds 2.0%).

The Federal Reserve will also publish its new economic forecasts, which will be subject to more scrutiny than usual. Traders should pay attention to when and how the central bank responds to further increases in Treasury yields because higher yields mean stronger US dollar.