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28.07.2021 10:52 AM
Positive IMF forecasts push euro and pound up. Dollar to decline amid soft Fed policy.

Euro rose on Tuesday amid positive forecasts from the International Monetary Fund (IMF). According to their projections, the world economy will grow massively in the coming months, provided that unequal access to vaccines does not limit recovery.

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To be more specific, IMF said the global economy will grow 6% in 2021, after falling 3.2% last year. The emerging markets will advance by 6.3%, while the already developed ones will expand by 5.6%. The United States, for example, is expected to grow 7.0%, while the Euro area is forecast to shoot up by 4.6%. The United Kingdom is also expected to advance by 7.0% this year. As for 2022, the IMF projects that the world economy will recover by 4.9%. UK, on the other hand, will grow by only 4.8%, which is slightly lower than the estimate of the Bank of England.

With regards to the access of vaccines, the IMF said that it divided nations into two categories: those that can count on further normalization of activities later this year and those that still will face renewed coronavirus outbreaks. However, recovery is not guaranteed even in countries where infection rates are currently very low. An example is the recent outbreak in the UK, which created quite a lot of political problems for the current government.

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Because of this, the IMF called on advanced economies to share their excess vaccine supply to poorer countries. "Multilateral action is needed to ensure rapid access to vaccines, diagnostics and therapies," IMF chief economist Gita Gopinath said. "It will save countless lives, prevent new strains of coronavirus from emerging and help save trillions of dollars in global GDP," she added.

In the United States, many workers and companies are facing problems, as the re-outbreak of coronavirus forced employers to make mandatory vaccination as a condition to employees. But since there are many who oppose getting a vaccine, the US government is under strong pressure.

More recently, a Texas judge dismissed a lawsuit filed by employees of a number of firms regarding a hospital's vaccination order. In Indiana, a court blocked similar claims by Indiana University staff and students. Despite this, large corporations and firms are increasingly making demands on workers to be vaccinated or undergo mandatory testing. The alternative is to follow the path of more than 150 Houston hospital staff who were laid off or quit at the end of June after refusing vaccinations.

The slowdown in vaccination has left unvaccinated residents vulnerable to the highly contagious delta variant. Accordingly, the total number of cases and deaths have begun to gradually increase again. Currently, about 53% of the US population is vaccinated. The Centers for Disease Control and Prevention (CDC) said the average number of doses over the past seven days is 291.565, which is 35.2% lower than the previous week.

Fed meeting

The Federal Reserve will have a meeting today, but almost everyone expects that members will just repeat their decision earlier, which is to maintain a soft monetary policy. In the case that the central bank implements a change, it will only be minimal and would most likely respond to the ongoing rise in inflation, which has long gone beyond the target value. Fed Chairman Jerome Powell may also mention their forecast for economic recovery, as well as plans on the bond purchase program.

Macro statistics

On Tuesday, Italy reported that the foreign trade surplus outside EU rose to € 4.79 billion in June, from € 4.676 billion last year. Apparently, there was a huge 23.3% increase in exports and 31.1% jump in imports.

Durable goods orders in the US also rose 0.8%, but this is clearly lower than the 3.2% growth in May. Excluding orders for transport equipment, the indicator was up by only 0.3%.

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Despite that, consumer confidence is still high, as the index rose to 129.1 points in July.

The main reason is the sharp increase in consumer spending, where many said they plan to buy houses, cars and large appliances.

All these were very detrimental to the movement of EUR/USD, but today a lot will depend on 1.1830 because going above it will result in a jump towards 1.1850 and 1.1875. If the pressure returns and the price drops below the level, the pair will decline to 1.1805 and 1.1790, and then plunge to 1.1753.

Jakub Novak,
Analytical expert of InstaForex
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