IFX Market Report: Friday 28th August 2020

With the eyes of the world on Jerome Powell as he gave his speech at the Jackson Hole Symposium, the FED Chair announced, as many expected, a substantial shift the FOMC’s monetary policy strategy; they will be in fact implementing Average Inflation Targeting (AIT). The FED will now target an inflation rate of 2% over a period of time, and “may” aim for inflation over 2% in order to hit the average target, if inflation is persistently low as is the case right now. For the short-term, higher inflation should push the dollar lower, yet beyond the short-term it is hard to make a call, as Powell has not given a timeframe determining this ‘period’ of time.

Initially, when Powell made his statement the markets took it as dovish – the dollar depreciated, yields fell, and equites were softer. However, as the market had time to process his remarks, the losses were quickly reversed, as the content was in fact almost exactly what was expected. Cable and EURUSD both took advantage of this move during the day, but by the close nearly all the upside gained had gone.

GBPUSD started the day off trading at 1.3212, and after a short spike during the day, closed off the day not far from the open, coming in at 1.3227.

EURUSD similarly has a spike during the session, allowing it to test the 1.19 handle, but was met with fierce resistance. The pair opened the day at 1.1822, and despite its movements throughout the session, the pair closed Thursday at 1.1822.

On the Brexit front, there has been little released, thus nothing for the market to act on. In other news however, this morning’s papers are reporting a major breakthrough in the Japan trade deal. It has been noted that Liz Truss, the Secretary of State for International Trade, will be making an announcement later today. It does come at a strange time however, with the Japanese PM Shinzo Abe resigning last night over a concern for his personal health.

Due to the lack of news, GBPEUR traded relatively flat across the day; opening at 1.1175, and closing the session off at 1.1187.

On the data front, already we have had the Gfk Consumer Confidence report from Germany, coming out worse than expect with a reading of -1.8, forecasted at -0.2. Then in the afternoon we have PCE reports and the Michigan Consumer Sentiment Final reading from the US.

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