Broad dollar sell-off picks up speed after the Fed’s announcement to temporarily allow for higher levels of inflation

The global FX markets have interpreted the Federal Reserve's move to target full employment over inflation targets as an overall dollar negative. Selling of the US dollar accelerated overnight as the greenback heads toward a fourth consecutive month of losses. 

Japanese Prime Minister Shinzo Abe announced his retirement due to an ongoing illness. The yen initially lost ground but quickly rebounded on overall dollar weakness.

“He that always gives way to others will end in having no principles of his own.”

Aesop
  • FX Rates
    August 28, 2020

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  • USD

    The Fed will, at times, allow inflation to remain above it’s 2% target while favoring a stronger job market. The subtle change provides the Fed some discretion when inflation appears to be rising beyond the 2% level and will give the Fed cover to keep looser monetary policy for longer. The FX market sold the dollar reading the new policy as allowing real interest rates to remain well below the Fed funds rate thus eroding the value of dollar assets.

    GBP

    The British pound hit year-to-date highs vs. the US dollar as London FX market's await comments from Bank of England Governor Andrew Baily’s speech at Jackson Hole later today.

    Health Secretary Matt Hancock has stated that he’s not concerned about whether his officials work from home, even as Boris Johnson urges workers back to offices to give a vital boost to city centers and the economy.

    EUR

    The euro traded over 1.19 in early morning trading on overall US dollar bearishness. Economic data out of the eurozone showed little improvement as Europe battles a resurgent Covid case count. PM Jean Castex stated that France is ready to institute a new national lockdown as Covid-19 cases continue to surge.

    CAD

    The Canadian dollar traded at its strongest levels since January as Canadian GDP for June surprised to the upside showing growth of 6.5% vs. the 5.8% expected. Crude oil price gains also helped the C-dollar. All commodity prices are stronger this morning on overall US dollar weakness.

    ASIA/PACIFIC

    The Japanese yen strengthened on overall US dollar weakness. Yesterday a member of Shinzo Abe’s cabinet said the Prime Minister would finish his current term, but overnight Abe announced an early departure. Abe will stay in office until his party, the Liberal Democratic Party, chooses a replacement. Market participants do not expect any significant changes in Abe’s economic policies.

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Peter Compton
WRITTEN BY
Peter Compton

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