EUR/USD soars to fresh two-year high on Washington impasse concerns

Philip McHugh August 19th 2020 - 2 minute read

The US dollar struck its lowest level in two-years yesterday as concerns over the stimulus impasse in Washington kept the USD selling bias firmly in place.

Meanwhile, the pound appears to be consolidating yesterday’s gains, with GBP/EUR stable at €1.1094 and GBP/USD flat at $1.3231. GBP/CAD is muted at C$1.7423, while GBP/AUD and GBP/NZD hold steady at AU$1.8261 and NZ$2.0001, respectively.

In the spotlight today we have the UK’s latest consumer price index. Will a surprise jump in inflation help Sterling extend yesterday’s gains?

What’s been happening?

The US dollar suffered an aggressive sell-off on Tuesday, extending the ‘Greenback’s’ current run of losses into its fifth day.

The plunge in USD exchange rates was largely attributed to the current impasse in Washington over the next round of US fiscal stimulus, which shows no signs of being broken anytime soon after Congress adjourned for a month-long recess last week.

The absence of any fiscal stimulus stoked expectations that the Federal Reserve will need to maintain its expansionary monetary policy for longer, putting more pressure on the US dollar as it dragged US Treasury yields lower.

While the slump in the US dollar helped to propel the EUR/USD exchange rate to a fresh two-year high, the euro actually struggled to find ground against most of its other peers as EUR investors grew increasingly unnerved by Europe’s apparent coronavirus resurgence.

The pound, meanwhile, edged higher during yesterday’s session, underpinned by fresh Brexit optimism.
This came on the back of bold predictions from Downing Street that a post-Brexit trade deal with the EU could be agreed by the end of next month.

What’s coming up?

Turning to today’s session, top of the agenda is the UK’s consumer price index.

This could see the pound extend its rally today as data published earlier this morning revealed inflation climbed to a four-month high in July.

For EUR investors the focus will be on the Eurozone’s own CPI release, with July’s finalised figures likely to limit the appeal of the euro if they confirm that the bloc slipped into a state of deflation.

Closing out today’s session will be the minutes from the Federal Reserve’s latest policy meeting, with USD investors looking for more insight into the bank’s policy plans for the remainder of 2020.

Written by
Philip McHugh

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