IFX Market Report: Thursday 30th July 2020

After a dovish message from the US Federal Reserve yesterday, the US dollar once again came under selling pressure and (once again) fell to fresh 2-year lows on the dollar index. The FOMC decided to keep their benchmark rate unchanged at 0 – 0.25% and contested that they will use the all the tools available to them to stimulate the economy in these testing times. The US central bank also reiterated that it would keep rates ‘near’ zero until it is content that the economy has improved, and it is on track to achieve maximum employment and price stability goals.

After the meeting in a virtual press conference, Fed Chair Jerome Powell continued the gloomy outlook, concluding there are signs that the continuous increase in COVID cases is detrimentally weighing on economic activity.

Almost immediately, as a consequence of the arguments outlined by the Fed, cable and EUR/USD pressed on reaching fresh highs.

GBPUSD opened the day yesterday at 1.2935, closing at 1.2973. However, shortly after the close the pair moved briefly moved past the 1.30 mark – which is the highest cable has been since 10th March.

Similarly, EURUSD reacted well to the dovish outlook; up 0.6% on the day, hitting 21-month highs and moving past that significant 1.18 barrier. During the trading session, the pair opened at 1.1749, and closed the day at 1.1769.

Over the last 2 weeks, EUR has gained 3.3% on the USD – and whilst the US’ outlook and economy is bleak, there are a few factors that could ruin EUR/USD recent impressive form.

One of the reasons could be a 2nd wave of COVID infections in Europe. Since Europe opened its doors again there has been a pickup in economic activity and we are seeing signs of a (albeit slow) recovery. If infections where to spike once more, and another lockdown is imposed in Europe, it is likely we will see all the recent gains deteriorate.

Naturally as well, if we see any improvement from the US regarding infections or the economy (particularly labour) – this will push the dollar to gain some ground and retract its recent losses.

On the data front, the main event of the day will come in the early afternoon as the US will post its Q2 GDP figures. Although it is unlikely to influence the rates (as a contraction will already be priced in), we are expecting an annualized contraction of 34 – 35%. If this comes to fruition, it will be the steepest quarterly contraction in history and a direct result of lockdown measures.

In contrast to cable and EURUSD, GBPEUR had rather uneventful day, opening the session at 1.1009, and closing at 1.1023.

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