GBP/USD: Dollar Drops On Dovish Fed

The Euro is extending gains for a fourth straight session on Wednesday, as US Congressional leaders agree on a $2 trillion stimulus package to prop up the US economy amid the coronavirus fallout.

At 08:30 UTC, EUR/USD is trading 0.3% higher at US$1.0833 at the upper end of the daily trading range. The move higher comes after the Euro US Dollar exchange rate closed 0.6% higher in the previous session at US$1.0789.

US Dollar Eases As Risk Sentiment Improves

Demand for the safe haven US Dollar is easing, and risk sentiment has soared after US lawmakers struck a deal to release $2 trillion in fiscal stimulus into the US economy. The deal includes bailouts to companies in distress and aid to individuals who need it. The draft package is expected to be voted on later today and is set to be the largest congressional bailout in US history.

To put it into perspective the $2 trillion stimulus package dwarfs the $800 billion Obama package agreed 5 months after the financial crisis.

Investors had grown optimistic of a breakthrough for the deal in the previous session. The resultant jump in risk sentiment saw investors plough money back into the US stock market. The Dow Jones jumped by 11.4% in its best one-day gain since 1933 Great Depression.

Euro Advances Ahead of German IFO Data

The euro continues to benefit from the weakening dollar and rising risk sentiment, despite the number of coronavirus deaths in Italy rising again. The number of daily deaths hit 700, up after 2 days of declines. However, there is a silver lining to the data, as the number of active coronavirus cases has dropped after two weeks of strict lock down in the eurozone’s third largest economy.

Investors will now look ahead to German IFO business sentiment data. IFO sentiment dropped sharply to 87.7 in the last reading, the revision today could see another sharp fall. The very measures that governments are taking to protect the public from coronavirus are causing demand for goods and services to evaporate.

The data will come after yesterday’s PMI numbers showed that business activity collapsed in March. The service sector PMI dropped to 28.4, the lowest level on record.


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