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US dollar strengthens as Fed announces new approach to inflation

currency-newsUS dollar strengthens as Fed announces new approach to inflation
The US dollar struck higher on Thursday as the Federal Reserve’s new average inflation targeting (AIT) plan saw US treasury yields jump.

Meanwhile, trade in the pound is mixed this morning with GBP/EUR stable at €1.1171 while GBP/USD has surged to $1.3281. GBP/CAD has climbed to C$1.7380, while GBP/AUD and GBP/NZD hold steady at AU$1.8174 and NZ$1.9887, respectively.

Coming up, a speech by Bank of England (BoE) Governor Andrew Bailey will be centre stage today. Could mention of negative interest rates send GBP exchange rates tumbling?

What’s been happening?

The US dollar strengthened yesterday, making some tentative gains in the wake of Federal Reserve Chair Jerome Powell’s opening speech at the Fed’s annual Jackson Hole symposium.

Powell’s speech initially prompted some aggressive USD selling as his announcement that the Fed would allow inflation to run hotter for longer led to speculation of more monetary easing from the bank.

However, these losses proved short-lived in light of an upwardly revised US GDP release and a spike in US treasury yields.

At the same time, the euro was left struggling for direction on Thursday, after the World Health Organisation’s (WTO) European Chief Dr Hans Kluge warned that coronavirus cases are on the rise in 32 parts of Europe.

The pound, meanwhile, remained rangebound through yesterday’s European session, with concerns over a spike in domestic coronavirus cases and lingering Brexit jitters limiting the upside potential of Sterling.

What’s coming up?

Turning to today’s session the focus looks to be on Bank of England (BoE) Governor Andrew Bailey’s keynote speech at the Jackson Hole symposium.

GBP investors will be eager to hear from the BoE governor about the bank’s outlook on monetary policy,
particularly in regard to the BoE’s current stance on unconventional policy and negative interest rates.

This could see the pound relinquish some ground this afternoon if Bailey indicates that the option for negative rates remains on the table for the BoE.

In the meantime, this morning’s economic sentiment indexes from the Eurozone could drag on the euro if they show the outlook has deteriorated this month amidst Europe’s coronavirus resurgence.

Finally, the publication of last month’s personal spending figures from the US will be closely watched by USD investors to see whether the rebound in consumer spending was sustained through July’s coronavirus resurgence.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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