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EUR/USD to emerge above 1.18 with a dovish FED


29 July 2020

EUR/USD has been firmly holding onto its massive gains ahead of the Federal Reserve's decision. A dovish message from the Fed and US politicians' struggles could send the pair higher. The virus also has a substantial influence on the currency pair, Yohay Elam, an analyst at FXStreet, briefs.

The Fed is set to leave its policy unchanged – but has ample room to move markets. Since the June meeting, coronavirus cases have leaped, consumer confidence dropped, and jobless claims began rising once again. While the Fed ruled out setting negative rates, it may now be warming up to Yield Curve Control (YCC) – depressing long-term borrowing costs. The benchmark ten-year Treasury yield is already low, under 0.60%, but it can always extend its losses toward 0%.

Jerome Powell, Chairman of the Fed, will address the press and YCC will probably top the agenda for journalists. Any hint about additional action could further weaken the dollar, while reluctance to act could push it higher.

It is essential to note that Powell and his colleagues have urged elected officials to do more, and may prefer adding pressure and waiting for them to act. Democrats are clashing with Republicans and the GOP is battling within itself over extending emergency support. The most urgent issue is federal unemployment benefits which expire at the end of the month.

In the old continent, the overall picture remains positive. IFO's German business confidence figures have risen beyond estimates in July, while the euro continues benefiting from the historic agreement on the EU fund. Flareups of the diseases in parts of Spain, France and Germany are seen as localized events for now. Keeping coronavirus under control is key to the recovery and to euro strength.

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