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RationalFX : Dollar continues week from hell

RationalFX : Sterling edged higher against a broadly weaker dollar but traded flat against the euro yesterday …

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RationalFX


GBP

The recent appreciation in sterling can be attributed to general dollar weakness as investors have unwound safe-haven dollar positions in favour of more riskier assets like sterling. This is mainly due to the fact that the US are struggling to control a second wave of the coronavirus with numerous states re-introducing lockdown measures.

Despite an isolated lockdown in Leicester, the UK have avoided a second wave thus far which has given investors some confidence that the UK economy will start to recover at a slightly quicker pace than initially expected.

There are also signs of life in a Brexit trade deal following comments from EU Chief Negotiator Michel Barnier last week. Admittedly, there is a long way to go for a significant breakthrough, however Barnier did acknowledge that he is “confident that a balanced and sustainable deal remains possible”.

USD

The dollar depreciated further yesterday following the Federal Reserve policy meeting as the Fed announced that they would use all the tools available to them to support the US economy and keep interest rates near zero for as long as possible as surging new coronavirus cases continue to hamper the economy.

In the Fed’s latest policy statement, Fed Chair Jerome Powell struck a dovish tone stating that the pace of the economic recovery in the US had slowed along with job growth making it very difficult for people to get back to work. Powell also admitted that the prospect of tighter monetary policy was some way off adding that the Fed were not even close to thinking about raising rates as coronavirus cases in the US surge to 65,000 cases per day.

In addition to this, the lack of progress from Republicans and Democrats on agreeing a coronavirus stimulus package has also been a stumbling block for the dollar making it a less attractive proposition for investors at present.

Key announcements

09:00 – EUR (GER) – Gross Domestic Product expected to fall to -9% from -2% previous

13:00 – EUR (GER) – Harmonized Index Consumer Price Index (YoY) (JUL) expected to fall to 0.4% from 0.8% previous

13:30 – USD – Gross Domestic Product Annualized (Q2) expected to fall to -34.1% from -5% previous

Source : ETFWorld.co.uk

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