10/06 – US stimulus not going anywhere

GBP: Continues to beat up on the USD

EUR: Targeting 1.14 against the dollar

USD: Fed to keep the stimulus rolling

Sterling

Apart from against the beleaguered USD, sterling is having a quiet week. Continual increases in risk appetite are supporting the pound as well as other correlated currencies – the AUD, NZD in particular – and we expect that will continue once the Federal Reserve meeting has concluded later today.

As we have noted many times, we remain unsure as to how long these gains will last. Much like the wider conversation about how far this amazing rally in stocks can go, the run in the pound will come to an end. We think that will occur in the next fortnight.

Brexit Trade negotiations are ongoing but by the end of the month, the decision must be made on whether the UK and EU extend the current transition period to allow more time for talks on trade; if not, then a deal must be put together by the end of the year or we risk leaving the EU with no deal. This remains the nightmare scenario for sterling.

We are running a webinar next week where we we will also look at how the UK economy is likely to perform moving forward, the impact on the Bank of England’s ability to move interest rates and where we see sterling moving in the coming year.

You can register for the webinar here

Euro

The single currency has begun to trade higher against the USD and is within spitting distance of the 1.14 level that we have targeted for a week or so now. Given the event risk of the Federal Reserve later today, we may not see it trade that level today but we would not be surprised to be seeing it this time tomorrow.

There is no European data to concern the single currency today.

US Dollar

This evening’s Federal Reserve decision is widely expected to see the most powerful central bank in the world emphasise its continued comfort with stimulus at current levels and pledge that more is available should it be needed.

We also expect that Chair Powell will note the slight improvement that we have seen in global data since they last met but that higher stock markets don’t automatically translate into a stronger economy.

This will all likely contribute to a weaker USD moving forward. There is little attraction to the USD in a world that is almost giddy with hope that the global economic recovery is ingrained and coming in hard.

The only saving grace for the USD tonight could be should thee Fed hint of interest rate increases within its forecast period i.e. out until 2022. Similarly, further language ruling out the prospects of negative interest rates may offer the USD some marginal assistance.

The announcement is due at 7pm tonight.

Elsewhere

Further moves higher in commodity markets are once again helping CAD, AUD, NOK, RUB and other currencies that benefit from their relationship to exported industrial materials.

Have a great day and please take care

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.