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Currency Market Analysis

Aug 27, 2020 | Currency Market Analysis

Global Themes

The US Dollar remains near a one-week lower head of the much-anticipated speech from Jerome Powell, the chairman of the Federal reserve. Expectations are that the bank will finally tweak its policy to help push inflation higher.

GBP

An influx of poor economic data this week, has been ignored by GBP traders. The British Pound appears immune to bad domestic news as it continues to drift higher against most rivals, particularly the US Dollar. Fundamentally, there are limited reasons to buy the pound and investor confidence is likely to be tested as Brexit and Covid-19 uncertainty ramp up alongside the grim economic data of late. Earlier in Europe, industry data showed UK car production is still down 21% on the year and the service sector cut jobs at the fastest pace on record in the three months to August. Meanwhile, post-furlough unemployment and a significant debt-to-GDP ratio are also negative factors hanging over the UK. Nevertheless, the pound continues to oscillate with risk sentiment and GBP/USD has been positively correlated with US stock indices of late, rising as US equities continue to clock all-time highs.

CAD

The Canadian Dollar posted a 7-month high against the greenback yesterday as firmer oil prices and a risk on sentiment from investors provided some support. Q2 GDP date is expected out tomorrow but today, the key driver will be the speech from Powell. Ahead of next years inflation target renewal, there is no clear path for the bank of Canada yet. according to Carolyn Wilkins, the bank of Canada continues to debate what policies will be used, keep an eye out for any further clarification on this.

USD

Normally held in Jackson Hole, the conference is going to be held virtually for the first time in history. This decision also means that any future monetary policy will be judged off realised inflation. There is a strong likelihood that the Fed are going to keep interest rates lower for longer which will most likely weaken the dollar. The market is hoping that with more clarity, Euro dollar is going to find some momentum. The difficult part is that for our clients, the direction of that move is still uncertain. A move to fresh highs or, back towards 1.17 are both in the realms of possibility.


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