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Currency Market Analysis

Aug 25, 2021 | Currency Market Analysis

Global Themes

USD

The US Dollar has started the first week on the back foot in the build-up to the highly anticipated Jackson Hole Symposium which will take place on the 26th & 27th of August. The greenback has seen its sharpest 1-day decline since May 2021.

A slight flip in market sentiment has seen investors take money out of the safe-haven dollar with rising equity prices and improving strength in risk-related currencies. However, traders are wary of taking a net short position on the dollar as the Jackson Hole event could spur another round of dollar-positive sentiment with the possibility of more hawkish comments from the Federal Reserve (Fed) Chair Jerome Powell. There is a souring sentiment around whether Mr Powell will commit anything due to the rising Delta covid cases. Any backtracking could see the dollar come under immense selling pressure. Some analysts believe that the Fed could remain on track to taper but will require two outperforming payroll numbers.

• EUR/USD peaked at a 1-week high yesterday topping out at $1.1764. EUR/USD has been stuck in a negative trend since April and the cross has failed to print a new high on the previous month. Another failed move higher could see the trend continue with the $1.15 a possible downside target for traders.

GBP

The pound edged lower this morning as it continues to trade in line with the risk sentiment of global markets as an uptick in global Delta variant cases was seen tempering the pandemic recovery. This week sterling had recovered 1% of losses after hitting monthly lows on Friday, but hit the key resistance of $1.3748 and has lost momentum.

Against the Euro, the pound trades within a narrow range, but the momentum behind the Euro grows as the EU’s largest economy, Germany, grew 1.6% in Q2. For the pound, Brexit chaos continues to linger on as the EU issued a legal warning over a bid to block the UK from the international convention.

• Investors will continue to monitor the UK and the global Delta variant cases with the focus shifting back to interest rates, particularly this week's now-virtual Fed Jackson Hole symposium. Any references by Chair Jerome Powell to the timeline for US asset taper and rate hikes will likely see the pound fall against the US Dollar.


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