IFX Market Report: Thursday 6th August 2020

Yesterday proved to be another tough day for the dollar – the index was down by 0.7% on the day, marking its 2nd straight day of losses and testing the lows printed last week. This is mainly due to the continued stalemate in the senate concerning the COVID-19 stimulus package. Republicans and Democrats are yet to come to an agreement, despite pressures that they are running out of time. US Treasury Secretary Steven Mnuchin has noted that if no agreement is made by Friday, there will be ‘no deal at all’.

Once again, the dollar's G10 counterparts made the most of the greenback’s weakness – cable gaining 0.6% on the day and the EUR up by 0.8%.

EURUSD started the day off trading at 1.1822, only to spike during the session and close of the day at 1.1897.

GBPUSD opened yesterday trading at 1.3106, making up decent ground during the day, climbing to 1.3161 in the early afternoon, only to depreciate slightly at the end of the session, closing at 1.3139. However, since the Bank of England (BOE) meeting at 07:00 this morning, cable is now trading at its highest levels since early March.

Since slipping from above 1.11 on Tuesday, GBPEUR was been unable to break back into that range yesterday. Opening at 1.1086, the pair declined over the day, closing at 1.1045. But since the BOE meeting GBPEUR is trading back above 1.11.

In spite of the BOE meeting being uneventful, the message was more positive than expected, thus boosting the pound. The UK central bank left its policy unchanged with interest rates staying at 0.1% and its bond-buying program at £745 billion. Members are content with high-frequency figures prompting them to substantially improve their growth forecasts from -14% to -9%

All 9 members of the Monetary Policy Committee voted to leave rates unchanged. Negative rates would have weighed heavy on the on pound but since Andrew Bailey, Governor of the BOE, said that such a move is “under active consideration”, it is not likely to happen any time soon.

Look ahead to the rest of the day, we have already had Construction PMI from the UK this morning, forecasted at 57, came in above expectations at 58.1 . From the US we have more labour data in the form of Continuing Jobless Claims, Initial Jobless Claims and the 4-Week Average. Although these readings do not usually take centre stage, they will be closely analysed as investors await (and try to predict) the all-important Non-Farm Payrolls release tomorrow. We have seen job growth from the report the last 3 months but there are fears, due to the recent spike of infections in the US, that we could see a significant downturn. If this is to be the case, it would only add insult to injury to the greenback, with its pairs likely to surge as a result. Cable would be likely to go beyond the 1.32 mark, which would be the highest it’s been since February; and there is also a strong chance EURUSD will test the 1.19 barrier.

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