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Morning Brief – Turkish Lira

Turkish Lira


On top of its already well reported economic woes, the Turkish Lira is now being further marked down by fears that the clash in the Caucasus between Armenia and Azerbaijan risks drawing in Turkey-the conflict is the most serious since 2016. Turkey has already weighed in against the Armenians. Those market fears have largely undone the good work of last week’s surprise 2% interest rate rise to support the currency. TRL is also under pressure as a result of a stronger USD. TRL has traded as low as 7.85 v USD, 9.14 v EUR and 10.09 v GBP. For those foreigners contemplating a move to Istanbul, there has never been a better time to buy an apartment overlooking the sea: a 4 bed duplex with stunning views and 246 sqm can be yours for TRL 6,726,000. Just imagine what USD 856,000 would buy you in NYC…not much!


Ecological Continuity


This eco tale demonstrates that it is not only the UK that has its policy challenges with the EU: this time it is France and concerns the myriad of small rivers that crisscross La Belle France. In the interests of ecological continuity, the EU in concert with French civil servants has ordered at a cost of hundreds of millions of EUR the removal of dams and weirs across France that both manage and preserve river levels, fish stocks and other wild life. EUR 50 Million has already been spent in Western France alone with devastating consequences. What, you may ask is ecological continuity? It transpires that its aim is to allow fish to swim up and down rivers without facing obstacles. France even has a dedicated Ministry devoted to this aim which is named Ecological Transition “to restore the circulation of fish and the transport of sediments to obtain a good ecological state for waterways to stop the collapse of aquatic biological diversity.” Despite it being obvious that those same weirs and dams -many of which have been in place for hundreds of years- will need to be replaced at even greater cost in the future when this policy is declared kaput, the program continues to be rolled out by the EU and the French Ministry of Ecological Transition.

Frexit anybody?!


Tell Laura I love Her


Ray Peterson had a hit with this number exactly 60 years ago in 1960. While RP left this world at the age of just 66 in 2005, a couple of his best songs endure such as Corinne, Corinna and especially Tell Laura I Love Her:

Laura and Tommy were lovers
He wanted to give her everything
Flowers, presents and most of all, a wedding ring
He saw a sign for a stock car race
A thousand dollar prize it read
He couldn’t get Laura on the phone
So to her mother Tommy said

Tell Laura I love her, tell Laura I need her
Tell Laura I may be late
I’ve something to do, that cannot wait




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – One Million

One Million

The official coronavirus death count has now risen above one million. This toll counts diagnosed cases of the virus where the new coronavirus has been listed as a cause of death. Frequently a nation’s death toll from COVID-19 has been subject to politics and a steep learning curve across the globe when it was first clear we faced a pandemic means that the true figure is likely to be considerably higher. New local lockdowns in Europe within the United Kingdom, France and Spain have prompted markets once again to reflect economic stresses with price action across markets increasingly similar to that during the height of the global lockdown. Despite the risk of a second phase of lockdowns across much of Europe, there is one economy that is standing out.


China pursued a severe and pervasive national lockdown following the emergence of coronavirus in the first quarter of this year. The lockdown encouraged a 6.8% contraction in first quarter GDP compared with the previous year. However, the success of China’s management of the pandemic facilitated a 3.2% expansion in the economy in the quarter April to June and, crucially, a current daily confirmed infection count consistently in the low double digits. The conclusion of this pandemic response is a forecasted 2020 GDP in positive territory, just shy of 3%.


The USDCNY exchange rate has moved lower in favour of the Renminbi to price in the outperformance of the Chinese economy. Rising volatility and concern over an unsustainably large net short positioning in the US Dollar do pose correction risks to the pair. For now, the People’s Bank of China’s has shown relative comfort to the rising cost of the Yuan that it has typically sought to avoid. The monetary authority has continued to set the daily peg at a level that has allowed markets to price in further Yuan strength. Having sold off during the first months of the pandemic, the pair has held below 7 Yuan to the Dollar since late July.


Tonight’s debate between Democratic and Republican Presidential candidates Trump and Biden also presents a risk to Yuan strength. Trump’s persuasion towards punitive trade terms with respect to China has been a defining feature of his term in the White House. Further threats towards China from the incumbent President during this debate could be a crowd pleaser but escalations in the trade war are Dollar, not Yuan, supportive. We are in a state therefore where economic fundamentals are and will continue to drive the Chinese Yuan higher. However, the combined risks of exchange rate manipulation, Trump’s coin flip foreign policy and wider financial market conditions pose a serious threat to this economic reality.




Discussion and Analysis by Charles Porter

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Morning Brief – Hospitality Sector

Hospitality Sector


In July this year UK Chancellor Rishi Sunak came up with a novel way to get diners to return to cafes and restaurants with his Eat Out to Help Out Scheme. But as time goes on, restaurants are needing to become more inventive and this week the winner (so far) has been London Mayfair based Peruvian restaurant Coya which fortunately for non plutocrats has an excellent off shoot in the City of London in Throgmorton Street. Here’s a deal for the quietest night of the week which Coya have named Sommelier Monday: Available on red and white wines only, bottles listed between £80 – £200 will be available at 40% of the normal price, and wines priced above £200 will be reduced by 20%.

So for example what would on other nights be a GBP 100 bottle of wine can be enjoyed for GBP 40 on a Monday. Two things which make this worth taking up: first off the food in Coya is exceptional and secondly the wine list is first rate.



Eyes down…and they are off…tomorrow night


Tomorrow marks the first of the debates between the two US Presidential candidates and the markets are a bit jittery as this first debate will count for quite a lot: Apple for example would benefit from a Biden victory as the perception at least is that he will be less confrontational towards China than Trump. For those of you who doubt the relevance of this first 2020 debate, cast your minds back to the first debate between Hilary Clinton and Trump in 2016: the next day the Mexican Peso appreciated by 2% versus USD. Broadly there are sector and individual stock judgments to be made and while Trump is seen as good for some sectors that will benefit from less of an interventionist President under Trump, others are seen as more likely to benefit under Biden such as solar. Polls put a Biden victory at a 53% probability down from 61% a month ago. And that Mexican Peso? In the past 3 sessions it has already strengthened v USD by 1.3%!



September 28: Birthday of Confucius


Born this day in 551 BC and living to the age of 72, Confucius has had and continues to have not just a Chinese but a devoted global following more than 2500 years later. Here is an example of just why with one of his many sayings:

“A great man is hard on himself; a small man is hard on others.”

SGM-FX’s Client Desk Head, Charles Porter has taken this on board and leads his desk by example having risen at 5am this morning to deliver his commentary on the world’s currency markets on Talk Radio.

Lets hope the rest of his team do not plan to embrace the other notable anniversaries for today September 28: it is also Ask a Stupid Question Day and Drink Beer Day. Charles’ colleagues should be mindful that there is only so much greatness to go around and a lack of sleep tends to make all of us smaller…much smaller!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Tin



As demand for electronic goods slumped at the beginning of LockDown, tin fell to $12,700 in March. The bulk of tin – more than half-is used as solder in electronic products to connect components. By the beginning of this month, tin had risen to over $18,000 but having now slid back to $17,500 is expected to return to $20,000+ later this year. Global semi-conductor sales have actually increased by 5% in the year to 31-07-20, so the stage is set for a further rise in tin for all commodity price watchers.



US Dollar


Appetite for higher risk assets has much reduced in the past two trading sessions and consequently when taken with expectations of some inflation, the Dollar has staged a further bounce with the dollar index against 6 other currencies rising from 91.8 at the end of August to its current 94.56. Other safe haven currencies SFR and JPY also remained firm this week.



Battle of Stamford Bridge


All Chelsea fans of a certain age will think that this is a reference to violent scraps with Away teams in the 70’s and 80’s emanating from the Shed End at Stamford Bridge football ground. Not so, today is the anniversary of England’s King Harold ll’s victory over Harold Hardrada, King of Norway at Stamford Bridge, Yorkshire in 1066. King Harold and his army had marched hard to the north to confront the Norwegian invaders and duly beat them off only to learn that another invasion force was on its way from Normandy under Duke William. Still battle weary and exhausted from the forced march north, Harold led his men back southwards to face William at Senlac Hill, Sussex in what became known as the Battle of Hastings. The rest is history and not talked about much at the Shed End at Chelsea.



Goats Head Soup


Never slow to spot a commercial opportunity, the Rolling Stones have this week re-released their 1973 hit album, Goats Head Soup which 47 years ago turned Gold. Cynics might wonder how 3 previously forgotten songs have lain forgotten and undiscovered for all this time, but the new 2020 Deluxe Album trumpets their discovery as sufficient justification to re-release this version of a set of some terrific songs, the best known of which is about Angie the then wife of David Bowie -with both of whom Mick Jagger is reputed to have enjoyed affairs-not entirely fun ones judging by the lyrics below:




Angie, Angie
When will those clouds all disappear?
Angie, Angie
Where will it lead us from here?
With no lovin’ in our soul and no money in our coats
You can’t say we’re satisfied
But Angie, Angie
You can’t say we never tried

Angie, you’re beautiful
But I hate that sadness in your eyes
Angie, I still love you baby
Remember all those nights we cried
All the dreams were held so close
Seemed to all go up in smoke
Let me whisper in your ear
Angie, Angie
Where will it lead us from here? Yeah

All the dreams we held so close
Seemed to all go up in smoke
Hate that sadness in your eyes
But Angie, I still love you baby
Everywhere I look I see your eyes
There ain’t a woman that comes close to you
Come on baby dry your eyes
But Angie, Angie
Ain’t it good to be alive
Angie, Angie, you can’t say we never tried


Have a great last September 2020 weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Double Digits

Double Digits


Hold onto your hats, there’s only 99 more days of 2020. For many, this year has been one they wish they could forget. For many of those, however, it will be the year they cannot. But will 2021 provide greener grass? Johnson’s admonition to the public that new Coronavirus measures could be in place for six months without a marked improvement in infection rates suggests perhaps the date rollover will not change our realities. As stocking fillers are downgraded from chocolates and socks to face masks, we will likely face a new year with the pandemic still an enduring reality.


Rising infection rates and further lockdown measures have weighed on Sterling sentiment this week. The Pound remains at one month lows versus the US Dollar and close to post-pandemic lows versus the Euro. As daily infection rates continue to gap higher, Chancellor Sunak will address the House of Commons today to deliver his Winter Economic Plan. With the furlough scheme set to end next month and employers finding limited incentive in Rishi’s cash bonuses for retained or new workers, it will be critical for the Pound that he presents a plan to heavily support the economy and labour market.


Rumours suggest that the Chancellor could introduce a furlough take 2, slimmer in coverage and closer aligned to European furlough models. Such models allow the government to top up workers’ pay for reduced hours worked. This should decrease the fiscal burden of the new scheme whilst allowing jobs that still have a place in today’s economy to be retained. The impact upon the unemployment rate and therefore UK Pound will depend on the generosity of the scheme, it’s implementation and the severity of the spread of the virus and reactive measures over the Winter. Mr Sunak will have his work cut out therefore to convince Sterling markets his Winter Economic Plan is enough to defend the economy.


Fundamentals on the monetary and Brexit fronts have been improving gradually this week. Speaking after the BoE’s monetary policy decision Governor Andrew Bailey put markets off the scent of negative rates slightly. Speaking on Tuesday his words encouraged a brief GBP rally when he upgraded Q3 economic forecasts and observed that last week’s monetary policy statement did not imply the Bank would use negative interest rates. Brexit negotiations too continue to show more significant improvements following the offer of concessions from both sides of negotiations. Technicals and momentum indicators are also beginning to suggest limited further downside for the Pound. Provided that the Winter Economic Plan spurs confidence in the UK economic outlook, GBP could be due a correction. However, a rate of infection above one and the consequent exponential growth in infections will itself continue to put pressure on the Pound limiting the scope of this correction. Lastly, with vaccine trials continuing to make progress, the probability of medical breakthrough continues to be underpriced in risk assets.




Discussion and Analysis by Charles Porter

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Morning Brief – US Dollar

US Dollar


Two weeks ago the teenage scribblers as Nigel Lawson referred to market analysts when he was UK Chancellor, had written the USD off and were writing its obituary as the world’s store of value and leading reserve currency. With the USD almost 3% stronger against EUR now, those same analysts are a bit subdued. The commodity currencies and GBP including NKR, SKR, AUD, NZD, look as if they are going to suffer. The Loony or CAD will suffer least being so closely linked to USD. Probably too early to declare the reversal of the more recent USD weakness but for those of you with good memories EUR stood at $1.40 exactly 10 years ago today and at $1.25 two and a half years ago. And the low? 1.05. So while the USD has weakened in recent times it is by no means at its weakest and still above its midpoint over the past 10 years.




A further example of the Alice through the Looking Glass world we live in in 2020: Covid restrictions re-imposed in the UK and traders in London bought oil which duly rallied 1.5% with WTI just below $40. Conventional wisdom would have been that restrictions would mean that the UK economy would contract but yesterday the mood was that those restrictions would have no impact on demand. More likely that due to the sharp 5% fall on Monday, the market was due for a correction. Also worth noting that stockpiled inventories in the US fell last week; phew- maybe demand pressures do still account for something in market psychology in 2020!


Swiss and German Bank Mergers?


The virtual annual Bank of America Merrill Lynch conference has been the scene of heightened expectation of European bank mergers this week; at the top of the list for bank marriage brokers are: Deutsche Bank, UBS, Commerzbank and Credit Suisse. Culturally of course it is more straightforward for German and Swiss banks to contemplate uniting with this challenging economic background, so maybe unlike the last few times there is something to this latest rumour round. Both UBS and Commerzbank have new senior management so that further bolsters the case for mergers given their need to place their own stamp on those banks at the outset.


Magnificent Muscadet


Les Quinze Hommees 2019 by Jeremie Huchet: A hommee was the 18th century term for the measure of acreage that a vineyard worker could work in one day. This particular muscadet is light years away from the acid muscadet that we could all afford in our initial forays into the world of wine. Better still Stone Vine and Sun the excellent Hampshire based wine merchant offer this wine at GBP 13.95 or a generously discounted GBP 150.66 for a case of 12. Delicious either as an aperitif or with fish or shellfish, Les Quinze Hommees deserves a space in your wine rack-I promise once you taste it, subsequent bottles will not be there for very long!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – It is what it is

It is what it is


Yesterday, as virus fears closed in on London’s financial markets the value of the Pound Sterling, as well as UK equities, has stumbled. The sell-off in London’s FTSE 100 was echoed on Wall Street with major US indices closing in the red. Commodity prices also took a step lower as markets focussed on the impact of a potential second coronavirus outbreak that would cap global demand as well as the impact of the upcoming week-long holiday in China. One potential beneficiary of rising uncertainty and risk could be the Japanese Yen, a long-standing safe-haven currency during times of turbulence. But has Japan’s recent political handover, balance sheet growth and deteriorating global trade changed the safe-haven status of this export-driven economy’s currency?


There are many reasons why the Yen is considered a safe-haven but the most important of these is history and behaviour. During times of global market distress the Yen usually rallies versus its peers and even against a safe-haven flow into the US Dollar, USDJPY usually falls. The theories as to why the Yen is a safe-haven are often long, convoluted and even contradictory. They range from the assumption that Japanese hedge funds reliably repatriate money during global crises raising demand for the Yen at the expense of foreign currencies, to the persistently low interest rates that the Yen attracts making it a funding currency that is purchased back during market volatility and uncertainty. During the height of the pandemic domestic concerns surrounding the spread of the virus within Japan prevented the Yen from benefiting from its normal safe-haven flow. Instead markets trusted in Gold, the US Dollar and developed government bonds. So perhaps the Yen has lost its status after all?


Not quite. The appeal of the Yen is not some indomitable force guiding markets towards the currency in times of distress. Domestic issues can and do prevent it from securing a safe-haven bid in markets. As Japan controlled its own outbreak of the pandemic normal service was resumed and the Yen rallied from around 110 to the Dollar before the pandemic to around 104 today. Crucially for the status of the Yen, during yesterday’s market sell-off and worry about a second wave of the pandemic there was evidence of strong Yen demand.


Two facts stand to undermine the Yen’s appeal as a safe-haven. Firstly, during the pandemic outbreak there was no evidence of domestic Japanese funds unwinding asset allocations abroad and repatriating the financial revenues of those sales to Japan. This stands in violation of the Yen’s classic safe-haven justification. Secondly, the resignation of Japanese Prime Minister Shinzo Abe on health grounds abruptly ended an eight year premiership. Rising political risk alongside an evaporation of the economic fundamental that drove investors to the perception of smooth shores in the Yen could have dragged the tide out on the currency’s safe-haven appeal.


Fortunately for proponents of the Yen as a safe-haven, the appointment of Yoshihide Suga as Japan’s Prime Minister will preserve the political status quo as far as possible. Mr Suga will champion the same kind of loose monetary policy and a new era of fiscal expansion meaning the policy shift will be in name only: Abenomics to Suganomics. Due to the engrained status of the Yen as a haven it is unlikely it fails to attract a safe-haven bid during times of uncertainty so long as domestic conditions remain palatable. For now, “because it is” will continue to suffice for an explanation of why the Yen is a safe-haven. However, it will be important that the Yen retains healthy demand as equity market valuations adjust to the prospect or forbid reality of a second wave in infections. With the Yen right at the peak of its medium-term range against the Dollar, maintaining its momentum could be a challenging task.




Discussion and Analysis by Charles Porter

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Morning Brief – Botswana



You don’t need Alistair Mcall Smith’s Number One Ladies Detective Agency to figure out this one….


Home to the Jwneng open cast diamond mine, the world’s richest, Botswana is looking beyond diamond mining as to how it will support its population of 2.3 million once diamonds are exhausted-production is already down-production of which accounts for 80% of export earnings and the single largest contributor to government finance. The way forward that has been identified is to create a technology and innovation hub which will be housed in the new Icon Building being built at a cost of USD 60 million in Gaborone the capital. Designed by top US firm SHoP which already has a number of tech clients including Uber and Google, the Botswana government are doing it properly realizing that the future requirements for the country far exceed the not inconsiderable revenues from the tourist industry. The Botswanan Pula currently trading at 11.3 v USD is reasonably steady but the markets have taken it from 4.55 in December 2003 reflecting the need for the country to identify a new significant source of earnings.




More about how this behemoth stock has performed in the past month: a month ago the price stood at $115 before rising to $134 and now is back to $110. The fall from the high is 20% and $532 Billion in value. It is not just the lack of a new iPhone release-that was widely discounted as a likelihood as we wrote a few weeks ago-it is more the general fall across the tech sector. For those who make their living by trading Apple stock such as my surfing friend in Sydney, Australia a cumulative move of 40% in a single month brings both reward and risk.


Dire Straits


It was 35 years ago today that Dire Straits released their smash Money for Nothing which certainly then struck the right notes in the 80’s climate of anything being possible and included a guest appearance from Sting on vocals. Much later on the song attracted negative press for being homophobic but in those more innocent days of pre PC awareness, it was the most commercially successful Dire Straits song ever released and equally as popular. Here’s a reminder of Money for Nothing that went Gold and the B side of course was the almost as successful Love Over Gold:


Now look at them yo-yo’s that’s the way you do it
You play the guitar on the MTV
That ain’t workin’ that’s the way you do it
Money for nothin’ and chicks for free
Now that ain’t workin’ that’s the way you do it
Lemme tell ya them guys ain’t dumb
Maybe get a blister on your little finger
Maybe get a blister on your thumb


We gotta install microwave ovens
Custom kitchen deliveries
We gotta move these refrigerators
We gotta move these colour TV’s




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Italy



The EU Recovery Fund is a colossal EUR 750 Billion or USD 890 Million and a good slug-probably EUR 290 Million or USD 340 Million- is destined for Italy as being one of the hardest hit economies by Covid. The Italian optimists are excited at the prospect of spending on the crumbling transport infrastructure and the patchy at best internet coverage and energising the economy. The pessimists however are concerned at the spectre of a further addition to the Italian debt mountain when economic growth and productivity remain rather more as elusive ambitions. Pre-Covid the Italian economy had remained pretty much unchanged since the start of monetary union 20 years ago. Public debt stands at an eye watering EUR 2.5 Trillion or 158% of GDP-second highest in the EUR to Greece. Public spending has a chequered track record so the Bank of Italy’s eyebrows will remain raised.


Flights to Nowhere


Travellers who simply cannot stand being grounded after all these months are signing up for flights that depart and land from the same airports. EVA of Taiwan and Japan’s ANA are now joined by Qantas who are offering flights from Sydney that fly low over Uluru or Ayers Rock, the Great Barrier Reef and Sydney Harbour before touching down again at…Sydney. It is not only for cashflow reasons that these airlines are offering such flights: to keep pilots licenses current, they have to fly a minimum number of hours and regularly. However, while we are on the subject of money, for those in Australia who are interested, this flight costs A$787 or GBP445 Economy or A$3787 or GBP2140 up front. It’s definitely struck a chord with Australians-the first flight sold out in 10 minutes!


Frankie Avalon-80 today.


With 31 charting hits in the Billboard 100 and 2 Number Ones Frankie Avalon is a great example of an entertainer who has successfully and repeatedly re-invented himself in his long career. Here is a bit of his Feb 1959 Number One, Venus:


Hey, Venus, oh, Venus
Venus, if you will
Please send a little girl for me to thrill
A girl who wants my kisses and my arms
A girl with all the charms of you

Venus, make her fair
A lovely girl with sunlight in her hair
And take the brightest stars up in the skies
And place them in her eyes for me

Venus, goddess of love that you are
Surely the things I ask
Can’t be too great a task

Venus, if you do
I promise that I always will be true
I’ll give her all the love I have to give
As long as we both shall live


Weekend Warrior:


As we head towards the weekend, spare a thought for (almost) new SGM-FX Client Desk staffer, Edwin Holland fresh from University of Manchester and whose commitment to the world of foreign currencies is looking promising: last Friday after end of week drinks, Edwin somewhat over refreshed remained in the City until 0530 Saturday. Some of his colleagues believed that he was monitoring moves in international markets, others thought it might be more to do with having lost most of his belongings including his wallet while sampling the delights of The Bunch of Grapes in Leadenhall Market and needing to wait until the Northern Line re-opened at 0537. Shame on you cynics!


Nice weekend everybody!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Don’t hold your breath

Don’t hold your breath


The scenario in which the Federal Reserve Bank in the United States forecasts no interest rate hikes for the best part of half a decade and the market interprets that as mildly hawkish and buys the US Dollar might seem fairly alien. It might seem so because it is! Overnight the Fed updated their forward guidance to show how the central bank expects to achieve its new inflation target averaging 2%. The results? The Fed is committed and expecting the cost of borrowing money to stay between 0 and 0.25% until 2024. Despite the comments longer dated treasuries sold off, raising the yield on those instruments. Here’s why.


Despite having thrown the kitchen sink at the Fed’s attempt to calm US financial markets and stabilise inflation and growth, the market was still expecting more. There was building consensus that the Federal Reserve would need to employ yield curve control and expand the asset purchase program to achieve their average inflation target. Instead the Reserve made no change to the $120bn monthly bond buying program. More importantly, Jay Powell continued to pay homage to the dry powder the Reserve holds without dipping his hand into the cookie jar and sharing any crumbs with the market. “We do have lots of tools. We’ve got the lending tools. We’ve got the balance sheet. We’ve got further forward guidance. There’s still plenty more that we can do”, the Chairman said. As it became apparent that these tools would not be deployed, it was also clear that monetary conditions this morning would be tighter than the market might have expected them to be following the decision.


In response to the lack of additional policy response yields rose across the board in the US attracting some demand for the Dollar. There was also an element of short covering to stabilise the market’s short Dollar positioning as the Fed put seems increasingly over played in the short run. Here’s how US policy stands today and the rule book that the Fed has written for itself to manage the pandemic recovery. Interest rates will not rise until the US economy restores full employment, and the 2% target is “moderately exceeded… for some time”. Members of the FOMC put a date on those words of at least 2024. The bleak assessment of the global economy and the more resilient growth forecast for the US economy for 2020 also helped the Dollar find support in the Asian and early European sessions.


Following the ECB last week, the US Fed and the Bank of Japan overnight, the Bank of England will offer its latest monetary policy decision today. Much like the three major central banks that have preceded its decision, the BoE is expected to keep already accommodative policy unchanged. Any change to the policy statement offering clues of further steps later in the year will be closely watched.




Discussion and Analysis by Charles Porter

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