Fed chairman Powell stated the more hikes could be coming

Chief economist Philip Lane warned that shrinking the ECB’s balance sheet too much could negatively impact lending and financial stability. He said that a larger balance sheet would also be a liquidity buffer for the ECB to cope with future shocks, without the need for interest rates to go to sub-zero levels again. Today, the economic calendar features monthly Italian industrial production. Investors will stay tuned to ECB President Lagarde’s speech for any cues on monetary policy. Another interesting speech will be that of Bundesbank President Joachim Nagel who will be talking about the fiscal policy challenges in an environment of high inflation. The fibre is currently trading at 1.0670, being pressured by a recovering greenback.

The UK Office for National Statistics is due to release economic data pertaining to monthly, quarterly and yearly GDP,? industrial production, manufacturing production and trade balance. The cable is currently trading at 1.2226 ahead of these figures.

The USD partly offset previous loses yesterday after Fed President Powell stroke a hawkish chord, by saying that ?FOMC policymakers are not confident that interest rates are high enough for the final fight against inflation. He indicated that robust consumer demand is also driving the US economy, a movement against the idea of the slowing down of the economy. Jerome Powell also indicated the road towards the Fed’s 2% inflation target is bound to be a lengthy one. But Powell also mentioned that the US economy may have developed resistance to rate hikes. However, other Fed officials have also stated that another hike is still possible. Yesterday, data once against underscored the resilience of the US job market with merely 217K first-time unemployment claims for the past week. Data today includes the Michigan consumer sentiment index and UMich’s 5-year consumer inflation expectation survey. The greenback was trading at 105.87 at the time of writing.