empty
 
 
22.04.2021 10:00 AM
Bank of Canada announced a reduction in asset purchase, but the ECB and the Fed are unlikely to support it. Overview of USD, EUR, GBP

As expected, the Bank of Canada announced a reduction in asset purchases to $ 3 billion a week, which reflects progress in economic recovery. The decline in issuance volumes also corresponds to a reduction in bond issuance. In the budget published earlier, it was announced that the issue of bonds will amount to 286 billion Canadian dollars from 374 billion Canadian dollars. The Bank of Canada currently owns 40% of the bond issue.

In addition, the forecast for rates has been shifted by at least six months, meaning the Bank of Canada expects conditions to increase rates in the second half of 2022, compared to the previous forecast "until 2023". As a result, the Bank of Canada was the first to see the formation of conditions for normalizing rates from the major banks, and now, the main question is whether it will be supported by other major banks. Today, the ECB will hold its meeting, while the Fed will hold it next week.

So far, market expectations for the Fed are as follows. The actual reduction in QE will begin in January 2022, and the first rate increase will take place in the 1st half of 2023. Large banks' analysts adhere to approximately these terms, and the spread of opinions is more or less a few months.

This image is no longer relevant

Here, the main target is to reach a yield of 2% for 10-year UST. If this barrier is reached, it will be possible to say that the conditions for a Fed rate hike are almost there. On Thursday morning, the yield was just above 1.5%. BoC's decision led to an increase in the yield spread in favor of the Canadian dollar, which is now highly likely to be reflected in the strengthening of the currency.

EUR/USD

Today's ECB meeting is expected to be calm. The Central Bank will refrain both from changing the monetary policy and most likely, from revising economic forecasts. According to the results of the polls, Bloomberg predicts that the first significant changes are planned for June, so today's meeting will just be ignored.

The ECB's Governing Council does not have a single strategy. The southern countries want QE to never end, as they have a huge accumulated debt. Meanwhile, the northern countries, led by the Bundesbank, have an opposite opinion and are calling for the curtailment of procurement programs as soon as possible.

The main focus will clearly be on Christine Lagarde's press conference, as questions about changes in GDP, labor market forecasts, as well as policy parameters in the future, will be inevitable. In this case, the euro may go either decline or remain in the range depending on the answers. The latter is more likely. The upper limit of the range is approximately at the level of 1.21, while the lower one is at 1.1920/40. The exit from the range is possible only in case that the ECB makes a surprise.

GBP/USD

The Bank of England will hold its meeting exactly two weeks later, by which all major banks will react in one way or another to the global growth in yields. Internal factors are favorable for at least announcing a shift in the timing to normalize policy, similar to the Bank of Canada.

The report on the labor market for March came out positive. The unemployment rate declined to 4.9%, which is better than forecasts, but what's most impressive is the growth rate of average wages, which have already exceeded the pre-crisis level. It can be noted that high wages mean high inflation, and the rise in inflation also brings the time of rate hikes closer.

This image is no longer relevant

The core consumer price index in March remained at the same level of 1.1% yoy, but the growth of producer prices noticeably surged. Therefore, we can expect the effect of the transition to the consumer sector in the future, namely 1-2 months. At the same time, vaccination rates remain high, despite the problems with AstraZeneca. B. Johnson's roadmap will be implemented, with the EC agreeing on an additional 1-month deadline to address the Northern Ireland issue as part of the Brexit process.

Technically, the pound sterling has a chance to continue its growth. The nearest resistance level of 1.40 withstood the first attempt, so the second attempt is being prepared. The target is the high of 1.4220.

Kuvat Raharjo,
Analytical expert of InstaForex
© 2007-2024
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $8000 more!
    In March we raffle $8000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Can't speak right now?
Ask your question in the chat.
Widget callback