- Euro (EUR) treads water with little to drive market
- Coronavirus cases in Spain increase causing concern but not panic
- Fed Powell may pre-announce a policy shift to Average Inflation Target (AIT)
- USD GDP & initial jobless claims up first
The calm before the storm. The Euro US Dollar (EUR/USD) exchange rate is holding steady in early trade on Thursday. The pair settled approximately flat on Wednesday at US$1.1829. At 07:15 UTC, EUR/USD trades just a few points higher.
The Euro is trading relatively flat mid-week, with very little of interest on the economic calendar. Coronavirus cases are spiking, with notable gains in France and Spain.
Spain recorded 7296 new daily covid cases, although the death toll is not rising. So far, the mood regarding an increasing number of cases in Europe is one of concern rather than panic or crisis.
Looking ahead, investors are waiting for a speech by the European Central Bank Chief Economist Philip Lane at the Jackson Hole symposium tomorrow.
Today is all about the Fed. Federal Reserve Chair Jerome Powell will take to the virtual stage for the annual Jackson Hole symposium.
Fed Chair Jerome Powell may announce or at least hint towards an important shift in policy to Average Inflation Target (AIT). This is a model which allows inflation to overshoot 2% for extended periods of time to compensate for the extended period of time that inflation has undershot the 2% target. Essentially this would be the Fed saying that interest rates will stay low for longer.
An ATI announcement from the Federal Reserve wouldn’t necessarily be a huge surprise. Some of this policy shift is likely to have already been priced in. However, it is unlikely to have been fully priced in either. Therefore, an AIT announcement by Powell could send the US Dollar lower.
It is also worth considering that expectations are high. Failure by Powell to signal that AIT is imminent in some form, could create high volatility in the markets and boost US Dollar.
Prior to Jerome Powell investors will digest the latest GDP update, which is expected to revised slightly lower to 32.6%, from 32.9%. Meanwhile initial jobless claims are expected to remain elevated at 1 million.
