IFX Market Report: Wednesday 26th August 2020

As the markets eagerly anticipate FED Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium, speculation about Average Inflation Targeting (AIT) being mentioned in Powell’s speech is growing by the second. AIT is a new policy framework that will allow the FED to surpass 2% inflation for one year, in order to compensate for weak inflation previously. Up until now, the FED aimed to cap consumer prices below 2% and raised rates amid an outlook indicating that inflation would go higher. The new framework means keeping interest rates lower for longer, therefore weakening the dollar.

As the markets wait for Powell’s speech on Thursday afternoon, EURUSD was rangebound for most of the day; opening the session at 1.1815, closed just above that, at 1.1817.

In contrast, cable was in fact able to gain some ground, with GBP capitalizing on a somewhat volatile dollar. The pair opened the day trading at 1.3083 – before moving firmly above the 1.31 mark, finally closing off the day at 1.3135

GBPEUR also moved beyond an important barrier in yesterday’s session. The pair started the day off at 1.1073, and despite positive news from Germany, climbed beyond 1.11, finishing the day off at 1.1115.

Yesterday proved to be positive for German economic data, with both Q2 GDP Growth Rate and IFO Business Climate both coming in better than expected. An improvement from the previous Flash estimate, German GDP gave an actual reading of -11.3%, in comparison to the forecasted 11.7%. As for the IFO, the report was able to post its 4th monthly gain, giving a reading of 92.6 – suggesting that business sentiment in the European powerhouse is becoming increasingly positive.

On the data front today, again, another quiet one, with only US Durable Goods at 13:30 being of any note. However, early tomorrow the Jackson Hole Symposium will get under way, with Jerome Powell due to speak around 14:00 GMT.

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