Last Friday, the US dollar rose against major world currencies. It exhibited strength amid a rise in US Treasury yields. The 10-year US Treasury yield returned to its annual high in the area of 1.6%, its highest level in a year. Upbeat fundamental data on the US economy has once again convinced investors that the Fed will have to act more aggressively in terms of monetary policy in order to prevent a sharp inflationary jump.
US Treasury Secretary Janet Yellen made a number of statements yesterday on this matter. Although her remarks differed from investors' expectations, Yellen assured that inflation risks in the US remained low. Besides, she said that the actions of the Biden administration, namely a $1.9 trillion relief plan, were aimed at helping the economy to survive the pandemic crisis and ensuring the full recovery of the labor market. "Is there a risk of inflation? I think there's a small risk and I think it's manageable," Yellen said on ABC. Despite the fact that there has been a sharp increase in prices for a number of goods, the Treasury Secretary and the Chairman of the Federal Reserve System, Jerome Powell, are confident that the temporary change in prices is caused by the lifting of quarantine measures and some improvements in consumer capacity of the population. "I don't think it's a significant risk. And if it materializes, we'll certainly monitor for it but we have tools to address it. I'm hopeful that, if we defeat the pandemic, that we can have the economy back near full employment next year. I think this is the package we need to do that," Yellen noted.
Speaker of the House of Representatives Nancy Pelosi promised the US Congress to start working more responsibly on a bill to restore the labor market and infrastructure that would be "financially sound". She also added that they did not count much on the support of Republicans on this issue. After Biden's big legislative victory, Democrats are not going to stop. Biden has recently said that he will work on the development of infrastructure and make every effort to stabilize the labor market. Large spending is planned for the construction of roads and bridges. However, Republicans do not agree with Biden in terms of the fact that the financing of any program should be possible only at the expense of the growth of new debts and the increase in the debt burden. "Building roads and bridges and water supply systems and the rest has always been bipartisan," she pinpointed. Although Republicans disagree on a number of aspects, Pelosi expressed hope for their support in making important decisions for the development of the American economy.
Initially, the Biden administration planned to launch these projects in February. Yet, Biden and his team are more likely to start working on these initiatives only in April. In the coming weeks, President Joe Biden's administration is going to provide federal grants to local governments that work to encourage COVID-19 safety and higher rates of vaccinations.
As I noted above, the US macroeconomic statistics did not foster the US dollar's growth on Friday. During the US session, there was a slight increase in the EUR/USD pair.
Judging by the signals of the technical analysis, bulls are unable to break above the resistance level of 1.1989. If the pair breaks through this level, riskier assets are likely to rise to the level of 1.2050. Notably, there is one more resistance level of 1.2110. If bears push the pair below the support level of 1.1933, the euro is likely to decline. Bear in mind that the indicated support level touches the lower limit of the current ascending channel from March 8, 2021. So, if the pair tumbles to this level, we can expect a decrease of EUR/USD to a low of 1.1890. Shortly after, the pair may return to 1.1835.
A sharp jump in energy prices led to a strengthening of producer prices in the United States. According to the US Department of Labor, the Producer Price Index gained 0.5% in February 2021 after rising by 1.3% in January. The increase in prices was in line with the forecasts of economists. Energy prices grew by 6.0% after rising by 5.1% in January. Core PPI excluding food, energy, and services prices increased by 0.2% in February after jumping by 1.2% in January. Core producer price inflation is expected to continue to gain momentum on the back of the economic recovery and stimulus measures. Last week, the US released a report on consumer prices, which met economists' estimates. The CPI Index added 0.4% in February after moving higher by 0.3% in January.
Another economic report from the University of Michigan on Friday showed an improvement in US consumer sentiment. According to the leading indicators, the US Index of Consumer Sentiment (ICS) jumped to 83. 0 points in March after falling to 76.8 points in February. Economists had expected the index to grow to 78.5 points. The rise in the number of people who have been vaccinated and the wider distribution of vaccines have had a positive impact on consumer sentiment. Additionally, the adoption of Joe Biden's aid package also contributed to the improvement of consumer sentiment. The latest payments total $1,400 per household member, including adults and children. The report also showed that US Current Economic Conditions Index rose to 91.5 points in March from 86.2 in February, while the Index of Consumer Expectations soared to 77.5 points from 70.7.
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