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Currency Market Analysis

Sep 21, 2020 | Currency Market Analysis

Global Themes

  • Second lockdown concerns
  • Internal Markets Bill fallout
  • Furlough ending
  • FED Speakers


The US Dollar starts the week on the back foot as investors looked ahead to an increased amount of Federal Reserve (Fed) speakers this week. The Fed’s rhetoric accounted for keeping interest rates for a low period to help cater for the impact of COVID-19. Investor still await developments in the US regarding fiscal stimulus but grow more fearful about a lack of material development.

Fed Chairman Jerome Powell is due to appear before Congressional committees later this week while Fed committee members Lael Brainard, Charles Evans, Raphael Bostic, James Bullard, Mary Daly and John Williams also make public speeches. In the short term, analysts said the Fed's lower-for-longer commitment on rates would drag on the dollar, though investors will pay close attention to remarks from committee members this week for any more clues on the new approach to the current rhetoric. Should the Fed continue this story, the outlook for the US Dollar is expected to remain negative.

EUR/USD maintains an upward channel since the currency pair broke above $1.15 peaking out at $1.2011. The pair has bounced on the few times it has dipped into the $1.17 handle. Pairing the Fed’s rhetoric into the most traded currency pair in the world many analysts expect EUR/USD to make new highs, pushing to levels not seen since 2018.


GBP/USD hangs mid $1.29's this morning following three unsuccessful breaks above the $1.30 handle last week. Continued Brexit hopes support the British pound however attention turns as UK health authorities mull further lockdown restrictions. Chancellor Rishi Sunak may extend business support loans as the existing furlough scheme winds down. UK PMIs could be key in an otherwise light calendar week of economic data.

GBP/USD takes the bids near 1.2955, up 0.33% on the day, heading into the London this morning. In doing so, the Cable pays a little heed to the coronavirus (COVID-19) threats emanating from the UK. Prime Minister Boris Johnson is expected to give Britain one final chance to prove it can follow the rules and suppress a second wave. The Prime Minister said he may have to "intensify" measures that could act as a temporary "circuit-break" to stem a resurgence of the virus and prevent Britain being forced into a more aggressive second lockdown.

As we near the Brexit transition period expiry at year-end, Sterling is becoming more volatile to any new developments. Parliament is set to approve the Internal Markets Bill during the week, and markets will focus on the EU's response. If talks collapse, the pound could tumble, while attempts to reach a compromise could boost it – either way, expect significant movements in Sterling.

Chancellor Sunak, has yet to announce what would replace – if anything at all – the furlough scheme which expires next month. The possibility of mass UK layoffs is worrying for the nation and markets. A gradual tapering of the scheme is likely, but without concrete details, sterling could suffer. The longer and the more generous the gradual retreat from the program is, the better for the economy and the currency.

Markit's preliminary purchasing managers' indexes for September are projected to show an ongoing recovery, with statistics for the services and the manufacturing sectors expected to show firmly in growth territory. Anything less could show investor fear and result in a weaker pound.

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