Bank of England may raise rates soon. US GDP exceeds expectations.

Euro plunged yesterday amid disappointing reports from the EU. To add to that, data on US 1st quarter GDP exceeded expectations, and the Federal Reserve gave hints of possible policy change. All this put downward pressure on the European currency.

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According to German market research group GfK, consumer confidence in Germany rose to only -7.0 instead of the expected -5.2. But for the coming months, economic growth should accelerate, thanks to the ongoing mass vaccinations. Consumer sentiment is also expected to jump, as will private consumption. But the main driver of growth will be exports, especially in goods and services trade with China and the United States.

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Istat also published consumer confidence in Italy, which jumped to 110.6 points in May from 102.3 points in April. Improvements were observed in both the manufacturing and service sectors. Business confidence also rose to 106.7 points.

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As for the US, 1st quarter GDP data was surprisingly better than anticipated. The US Department of Commerce said it grew to 6.4% in the first quarter, thanks to stronger economic recovery. Consumer prices also rose to 2.5%, which is obviously higher than the preliminary estimate of 2.3%. Analysts expect the 2nd quarter GDP to jump as high as 10%.

With regards to employment, the US Department of Labor said initial jobless claims fell to 406,000, which is 38,000 lower than the previous week. This suggests that the labor market is rapidly recovering.

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Unfortunately, orders for durable goods dropped in April, falling by about 1.3%. The main cause is the decline in orders for transport equipment, which slipped by 6.7%. But without this category, orders for durable goods are up by 1.0%.

All this pulled the euro down yesterday. But today a lot will depend on 1.2180, as a break above it will turn the situation around and push the quote towards 1.2220 and 1.2260. But if the euro goes below the level, the quote will drop to 1.2126, and then to 1.2080.

GBP

Pound also plummeted yesterday, when the Bank of England said it is already considering a tight monetary policy. BoE member Gertjan Vlieghe said the central bank might raise interest rates next year, provided that the situation improves and the unemployment rate remains low.

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Hence, UK Prime Minister Boris Johnson promised that recovery programs will continue as planned, adding that nothing can delay the full opening of the economy by June 21 this year.

But UK Health Secretary Matt Hancock was skeptical on the full resumption of operations and mentioned the Indian strain of Covid, which is currently spreading across the country.

All this halted the pound at 1.4215, but if bullish traders managed to push the quote above it today, then the pound will climb towards 1.4265 and 1.4310. Accordingly, a decline below the level will push the quote to 1.4155 or much lower price levels.

The material has been provided by InstaForex Company - www.instaforex.com

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