Euro could not increase lately because the expectations for an earlier curtailment of US bond purchases and an increase in interest rates are making dollar more attractive.

At the same time, members of the European Central Bank still do not press any changes on monetary policy, which indicates their reluctance in winding down the super-soft policy. Perhaps, this is because they are trying to find balance between the ongoing economic recovery and the moves implemented by the central banks of other countries. However, this could lead to serious imbalances and fluctuations in the financial markets.

Obviously, the ECB does not want the markets to set higher yields on borrowing, and are focusing on changes that may occur in the United States and several other countries. The only thing that saves the central bank so far is the fact that European markets are lagging behind the United States.

In that regard, many analysts are drawing a parallel between the actions of the Fed and the ECB, claiming that the latter is following the steps of the former. But in her speech yesterday, ECB President Christine Lagarde emphasized that there are differences in recovery and risks of inflationary pressures between Europe and the United States, so there is no need to level off the two.

And now, when other developed economies are starting to reconsider easing stimulus measures, the ECB remains resilient in keeping its policy unchanged. According to the central bank, interest rates will remain near zero for a long time, and the volume of bond purchases will stay the same. In fact, last week, the volume of purchases under the PEPP program accelerated to its highest pace since the peak of the crisis. This compensates and dampens the growth in bond yields due to active sales from investors.

Meanwhile, other central banks such as in UK, Canada, Norway, Sweden, South Korea and New Zealand are gradually pushing markets to cut back on their bond purchases.

Going back to the ECB, board member Fabio Panetta said he believes that the risk of growing inflation will remain limited, so there is no need to worry about it. ECB Vice President Luis De Guindos is also confident that economic outlook for the Eurozone will continue to improve, but it is not the right time for a change in policy.

With regards to macro statistics, data released on Monday show that import prices in Germany rose at the fastest pace since 1981, growing by 11.8% year-on-year and by 1.7% month-over-month in May. Excluding energy prices, the index grew 6% year-on-year.

And today, data on CPI will be released, which analysts forecast to show a slight slowdown in growth. If this happens, the ECB will have no doubts about the correctness of its approach to monetary policy.

In terms of EUR/USD, a lot depends on 1.1935 because going above it will result in a further jump towards 1.1975. Meanwhile, a drop below the level will lead to another decline towards 1.1885 and 1.1850.

GBP

Pound slipped on Monday after the UK government announced new travel restrictions in the country. Apparently, COVID-19 cases grew again due to the Indian variant of the virus.

Many traders were counting on the full opening of the UK economy on June 20, but the opposite happened. Portugal and Spain have already introduced new restrictions on UK visitors, and Germany is pushing for a more coordinated response from European Union members. Hong Kong has also banned passenger flights from the UK.

All this pushed GBP/USD down yesterday, bringing it to 1.3885. Going below this level will result in a further decline towards 1.3830 and 1.3785.