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Powell talks up virus risks ahead of US GDP data
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30 July 2020
Head of Market Strategy at Ebury Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.
Sterling briefly edged above the psychological 1.30 level versus the US dollar yesterday – the first time it has done so since the violent sell-off in the currency during the onset of the market panic on 10th March.
On the topic of interest rates, which were unanimously kept unchanged, Powell noted ‘the Committee expects to maintain this target range [0-0.25%] until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals’. At the June meeting the Fed indicated that rates would likely remain unchanged until at least the end of 2022. These comments are very much in line with that, with many economists now pushing back their calls for higher rates until three or four years in the future. This seems a reasonable assumption, in our view.
German GDP numbers surprise to the downside
Today bodes to be a relatively busy one in the markets, with a host of economic data releases on tap. This morning’s German GDP data was slightly disappointing, showing that Europe’s largest economy contracted by a larger-than-expected 10.1% quarter-on-quarter in Q2, versus the 9% consensus. This was, however, offset by some encouraging news on the labour front. The number of those unemployed in Germany declined by 18,000 in July, the first time it has done so since prior to the crisis in March. While this suggests that the Euro Area economy is rebounded well as lockdown measures are unwound, it is worth noting that this only accounts for less than 3% of the total net jobs lost during the pandemic.
Next up will be this afternoon’s US GDP data for the second quarter. The market is eying an annualised contraction of 34% (the equivalent of approximately 8.5% QoQ). As we mentioned yesterday, should this number significantly surprise to the downside then that would likely fuel the narrative that the prolonged shutdowns are weighed more heavily on activity in the US relative to Europe, which could drag the dollar even lower this afternoon.
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