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USD largely down ahead of Fed meeting

Thu, 06/11/2020 - 17:15

With protests still raging and an uptick in coronavirus cases now on the cards, the situation in the US is still anything but certain. However, as the S&P 500 flirts with recent maximums and the Nasdaq records new all-time highs, the markets seem confident that the worst is now behind us. And with investor confidence in a rapid V-shaped recovery growth pattern, demand for haven currencies like the US dollar is naturally lower than it was a month ago.

As we look at what the economic calendar has in store for us this week, at the top of everybody’s list will be the US Federal Reserve’s interest rate and monetary policy decisions today (10/06). What Fed Chairman Jerome Powell and the other regional presidents have to say — both in their actual decisions as well as in their post-meeting comments — will undoubtedly determine the short-term course of numerous currency pairs. Today, the Fed’s policymakers are either going to feed the current appetite for risk assets or remind investors of how long the road to recovery from the coronavirus pandemic is.

On balance, however, when we consider the US regulator’s move to loosen its conditions for the Main Street lending programme this Monday, it looks like the central bank will continue to pursue a relatively dovish position in a bid to accelerate the economy’s healing process from its COVID-induced downturn. In all probability, we will see Chairman Powell keep rates unchanged, which should see the dollar continue down towards pre-crisis levels.

But what does this all mean for the Euro? EUR/USD is currently trading within its established range around 1.13 as European Central Bank President Christine Lagarde calls on leaders to approve the European Commission’s ambitious mutual borrowing and grant plans. This comes after the ECB announced another €600 billion in further monetary stimulus just last week. The combination of growing confidence in the single currency and the projected drop in dollar demand should see the Euro continue to strengthen against the greenback.

Looking to the United Kingdom now, EUR/GBP edged up to 1.28 today amid government plans to ease lockdown measures. It appears the virus’s curve may finally be flattening. The lack of progress in recently resumed Brexit negotiations could hold the pound back from more significant gains against the other majors, though.

Over in Asia, the dollar is strengthening against many of the region’s major currencies, with the yen the only real exception. USD/JPY has been sliding all week and is now testing new lows below 107.50. The yen has broken below all of its moving averages, including the 200 SMA. The technical data would suggest that any dip below 106.95 could pave the way for even more substantial declines.

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