IFX Market Report: Wednesday 29th July 2020

Cable continued to press on yesterday, pushing just past 1.2950 during the session – its highest levels since 11th March. As noted in Tuesday’s report, this move is not of sterling’s doing, but weakness in a crumbling USD. Nonetheless, analysts confidently argue that GBPUSD could reach the 1.30 mark as early as this week if greenback’s harrowing performance persists.

At the start of the session GBPUSD was trading at 1.2861, closing the day at 1.2950.

It should be noted that since last week’s fall into the 1.09 territory, GBPEUR opened the day at 1.0968, and was trading at 1.1036 at the close.

All round a rather positive day for GBP against its peers.

EURUSD on the other hand, in comparison to previous recent days, had a relatively calm session yesterday. Opening at 1.1727, with limited price action over the course of the day, closed at 1.1734.

Across the pond, it was a slightly better day for the dollar (but by no means ‘good’) in the lead up to the FMOC policy meeting later today. Experts agree that it is unlikely there will be any change in FED funds rate or pandemic relief programs. Since its two ‘emergency’ meetings in March, which saw zero FED funds rate and more than 2 trillion in security purchases and loan guarantees, the FMOC have kept their approach intact with the ambition of doing all it could to ensure the US economy recovers from its most rapid collapse in history.

Officials have indicated, and many analysts subscribe to the notion, that there may be a move to target longer term rates. They would do so by what is called ‘yield curve control’ where the FED would set a cap or target for one of several specific long-term rates, and buy or sell Treasuries to move the market yield to the desired return. In terms of controlling the economy in an environment such as this, many economists see this move as one of the only remaining options. Former Chairs Janet Yellen (2014 – 2018) and Ben Bernanke (2006 – 2014) have both noted that the bank may need to cap Treasury yields as means to regain some control. Current FED members, Richard Clarida and Lael Brainard also believe it should be given significant consideration as means of recovery.

Chairman of the board, Jerome Powell, stresses that the path ahead is still very uncertain and will “depend in large part on our success in containing the virus.” A rise in virus cases in several Western and Southern states has disrupted reopening measures and is causing a delay for many workers; thus threatening to further hurt the US labour effort, and consequently the US economy as a whole. With claims for unemployment benefits being over 1.3 million for 18 weeks, Consumer Confidence falling to 92.6 yesterday, Powell’s fears are not unfounded.

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