Europe is facing one of the most challenging times in its history. The pandemic ravaged the old continent as it entered a third wave of infections recently.
The vaccination campaign is a total disaster when compared to progress seen in other parts of the world, and citizens pay the price. As such, the Euro summit scheduled at the end of the week is crucial in sending a message of stability and unity as the European Union looks weaker by the day.
News from Turkey over the weekend did not help. The Turkish President, Erdogan, ousted the central bank’s head and the news sent shivers throughout European stock markets. The problem is that European banks have exposure on Turkey and other emerging markets and instability in the region creates instability inside the union as well.
Fed Members Speeches to Move the Dollar
The trading week ahead is full of Fed members’ speeches. For example, only today there are four members delivering a speech (Barkin, Daly, Quarles, Bowman). On top of that, the Fed’s Chair, Jerome Powell, will hold a speech as well, as he is due to participate in an online event hosted by the Bank for International Settlements (BIS).
The Fed had a hard time last week explaining to financial markets participants why it keeps the monetary policy accommodative when the economy is recovering much faster than expected, and inflation is rising. Judging by how the markets reacted to the Fed’s announcement, it appears that the Fed did a great job communicating its intentions, but long-term yields reversed higher again, putting pressure on the Fed.
Fed’s Powell will testify this week in front of the House Financial Services Committee on the quarterly CARES Act report. Janet Yellen, the U.S. Treasury Secretary, will accompany him, and so the dollar is likely on the move on Tuesday and Wednesday when the testimonies are scheduled.
On Wednesday, the PMIs in Europe will tell market participants if the economic recovery continues or stalls. The focus is on the PMI manufacturing data, as the services sector remains depressed due to many European economies being in lockdown.
The week ends with the EU economic summit. Leaders gather to discuss the response to the pandemic, but also the situation in the Eastern Mediterranean and relations with Russia. All in all, expect a volatile week ahead with plenty of market-moving events.