IFX Market Report: Thursday 17th September 2020

As markets prepare for a Bank of England Interest Rate Decision today, the pound has gained some ground due to Boris Johnson giving MP’s the ability to vote on amendments to his controversial Internal Market Bill (IMB).

When news of Boris’ compromise was first leaked into the markets, the pound gained just over 1% against the EUR, enabling the pair to test the 1.10 barrier. On the day, GBPEUR opened at 1.0865, rose to close at 1.0967, before spiking higher as the night progressed.

In anticipation of the Fed Interest Rate decision yesterday, cable managed to gain nearly 100 pips before the close. After which, in reaction to the IMB news, the pair managed to rise above the 1.30 level but was unable to sustain itself. At the start of the session GBPUSD was trading at 1.2880, before closing off above at 1.2979.

Last night we also saw the Federal Reserve enhance its monetary response to the pandemic by projecting no interest rate increases until at least the end of 2023. It was also indicated that it would not tighten policy until inflation had been higher than 2% “for some time”, highlighting the Fed's shift towards a more dovish long-term outlook that was endorsed last month at the Jackson Hole Symposium.

Despite the fact that the US economy has recovered faster than initially predicted by the Fed at the beginning of the COVID-19 pandemic, the ‘bounce back’ is far from compete and the economy is still vulnerable to the unfavourable health outlook and deteriorating support from fiscal policy. Powell noted yesterday the importance of fiscal stimulus to the wider economy and in particular the US labour effort. Powell explained that “more fiscal support is likely to be needed” and with their being “still roughly 11 million people out of work. A good part of those people were working in industries that are likely to struggle.”

With the Fed not giving much in terms of an actual move, the dollar firmed, consequently EURUSD depreciated as a result. The pair opened the session yesterday at 1.1854, before closing off at 1.1834. Over the night we saw the pair trading at the 1.17 level, but since the London open this morning the pair is trading just above 1.18 (09:35).

On the data front, at 10:00 we have the Inflation reports from the Eurozone, followed by the BOE Rate Decision at 12:00. Tomorrow’s notable releases will be the UK Retail Sales and the Michigan Consumer Sentiment from the US.

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