- USD Continues to Suffer on Fed Policy Moves
- GBP & EUR Take Full Advantage of Weakness
- Data Shows Lowest EU Inflation in Two Decades
September has kicked off with much of the same from the US Dollar forex market. This means further freefall for the Greenback much of which has been prompted by Fed policies around keeping interest rates low, and potentially allowing for higher inflation to occur. Other market major currencies have taken full advantage of the weakness to strengthen their own positions. Both the Pound and Euro have advanced despite the fact that both have their own struggles with low inflation also a big worry for the EU region.
Dollar Drop Continues With Fed Quiet on Negative Rates
The Dollar drop has largely been exacerbated by moves from Fed Chair Jerome Powell both to keep interest rates low, and unchanged, and also to turn a fiscal blind eye to inflation in the short-term should it go over the previously accepted 2% threshold. This is all in an effort to stimulate the economy which is still in the throws of the Coronavirus pandemic.
While talks continue to stall on another round of fiscal support from the government, the Fed is doing all it can to keep the economy moving, and as promised, is using of the tools at their disposal to do so. While this is coming at the expense of the Dollar for those who are forex trading, it is sustaining the equities markets which continue to hit all-time highs. The S&P 500 index had its best August performance since 1986.
Other Major Currencies Step Up to the Mark
Where the Dollar has been sold, other major currencies have been well bought. Forex brokers noted a strong uptick in the Euro, and particularly the Pound, even though both are battling challenges of their own domestically. The Pound traded at highs above $1.34, while the Euro briefly peaked above $1.20.
Both have been bolstered by Dollar weakness despite the fact that UK PMIs so far released have been downgraded slightly, and the Eurozone appears to have an inflation crisis of its own to contend with. Much of the Sterling strength today may be coming from the positive news that AstraZeneca who are based in the UK, are set to launch large trial on their coronavirus vaccine in the US. The trial will feature 50,000 participants and looks to put the company in a very strong position in terms of vaccine development.
Negative Inflation Reading Shocks EU
The headline inflation rate for the EU bloc is expected to come in at -0.2% for August. Though downward pressure had been expected, the negative reading will be one of great surprise for the ECB given the fiscal support they have already provided markets.
Policymakers will now have to decide how to proceed, and in doing so strike a fine balance between continuing to stimulate the economy while placating more frugal nations who had already raised strong concerns against the amount of financial assistance being given.
