EUR/USD has fallen back to range ahead of US retail sales and the Federal Reserve decision. The pair may rise in response to weaker than projected retail sales but drop if the Fed fails to hint any imminent policy changes, Yohay Elam, an analyst Yohay Elam, informs.
Key quotes
“Jerome Powell, Chairman of the Federal Reserve, laid out a new policy framework back in August. The Fed will focus on employment and let inflation overheat. While he may provide more details about how high the bank would tolerate rising prices, the lax approach is already priced in.”
“If the Fed paints a worrying picture on growth but does not propose any imminent action – such as controlling the yield curve or setting negative rates – equities could dive. In turn, the safe-haven US dollar could find demand and gain ground against the euro in this case.”
“While there is a significant probability that EUR/USD to fall in response to the Fed, it is unlikely to remain idle before the event. The US releases the all-important retail sales report for August – the first month in which the $600/week federal unemployment top-up expired. Expectations stand at a modest increase once again, but surprises are not uncommon. As consumption consists of around 70% of the economy, any downside surprise could weigh on the dollar.”
“Coronavirus cases continue rising in the old continent and are also tentatively increasing in the US. Investors seem undeterred by the disease at this point and are hopeful for a vaccine – or more than one – to be available in the coming months.”
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