IFX Market Report: Thursday 20th August 2020

Following better than expected CPI numbers yesterday, cable, having found support at 1.3230, pressed on to the 5-month high of 1.3264. The headline UK CPI figure came in a 0.1%, with last month’s figure and the forecast at 0.6%. This upbeat reading of the UK’s inflation gives the Bank of England more time to continue with its current wait-and-watch approach.

At the start of the session, GBPUSD opened the day well supported at 1.3232, yet after the release of the FOMC’s minutes, depreciated to below 1.32, closing the day off at 1.3190.

Although it has been a rarity this month, the dollar received a boost, allowing it claw back some of the losses it has made in recent weeks. The uplift derived from the release of the last FMOC meeting minutes held at the end of July. The minutes showed that the FED have doubts over the potential benefits of the yield curve control policy, noting that yield caps and targets were not warranted as it would likely provide only modest benefits in the current environment. This message triggered a sell-off in US Treasuries and pushed the bond yields higher across the board, prompting USD short-covering.

Despite this spike, it is important to note that whilst the uncertainty over the next round of the US fiscal stimulus persists in the Senate, USD gains will be somewhat capped. Not only this, if we are given further signs that the US is not in a state of recovery (i.e. bad labour data), it is likely the greenback will come under significant selling pressure and could depreciate massively.

Naturally, EURUSD also suffered as a result of the FOMC latest minutes – the pair opened the day trading comfortably at the 1.1926 mark, only to fall in the afternoon, ending the day at 1.1896.

As for Brexit negotiations, there have been reports that ‘expectations are low on a breakthrough’ but the market is not taking too much notice as it is nothing we have not heard before. There does, however, appear to be a disagreement in regard to UK truckers’ access to Europe. Whether this will develop into a serious issue is yet to be seen, nonetheless, given we are 2 days in, it is not a great start.

Thankfully, GBPEUR has appeared unphased by the lack of development, continuing to trade rather flat. Yesterday the pair opened the day at 1.1094, before closing off the session at 1.1086.

On the data front, the first event of note will be the ECB’s Monetary Policy Meeting Accounts this morning. Following that, in the afternoon we have the all-important weekly Employment Report. Forecasts suggest a better reading than last month for Continuing Claims, Initial Claims and Unemployment Rate – if this comes to fruition it would be a very positive sign for the US economy.

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