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According to Jane Foley, senior FX strategist at Rabobank, one of the key events of early September will undoubtedly be the ECB policy meeting scheduled for September 12.

Key Quotes

“The market has been positioning itself for a significant relaxation of monetary policy conditions.     In the council meeting on July 25, there were signs that ECB President Draghi was attempting to bind his successor Lagarde to take decisions such that the Bank’s inflation target of ‘close to, but below 2%’ would become an average. This would imply that policy makers could be more tolerant of temporary overshoots of CPI inflation.”

“While this may be an effort to influence inflation expectations akin to the tactics that have been tried by the BoJ, it left the market with the impression that further stimulus is just around the corner. The likelihood of ECB policy action in September is just one factor behind our long standing forecast that EUR/USD will trade at the 1.10 level on a 1 to 3 month view.”

“In the US expectations of further Fed rate cuts is also very topical and Trump has also raised the issue of more fiscal stimulus – though Congress could thwart a Presidential initiative on this front not least because of the CBO’s warnings that the budget deficit is already on course to reach USD1trn in FY2020. That said, news on US policy can not necessarily be expected to have a text book reaction on the USD.”

“If Fed rate cuts are successful in shoring up risk appetite, the USD may fall as investors move into higher yielding assets. However, if sour investor sentiment overwhelms a bearish Fed, the USD is set to hold firm. The global economic slowdown combined with the risk that the Sino/US trade war will be protracted has been the basis of our strong dollar house view.”

“While President Trump has been frustrated by the strength of the USD this year, we maintain that FX intervention by the US treasury is unlikely.”