July 22, 2024

Monetary easing essential for the economy to heal

LQDFXperts Weekly Highlights: Monetary easing essential for the economy to heal

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While additional monetary easing is a must to keep economic growth on track, the sentiment of the markets slightly improved due to supportive data.

The policymakers worldwide have unleashed an extraordinary wave of monetary easing and fiscal support. However, many countries are now battling the second wave of infections, which could further delay a full-fledged economic recovery.

The U.S. FDA authorized a coronavirus treatment using blood plasma from recovered patients. However, many investors are waiting for more progress and a credible vaccine.

Investors are also closely watching talks of a U.S. fiscal package, Fed’s upcoming policy review and the upcoming U.S. election campaign.

Traders across the broader financial markets are also nervously watching Sino-U.S. ties as the wide-ranging diplomatic dispute does not quieten down.

On the U.S. election front, Trump’s re-election campaign lost one of his more passionate and controversial spokespersons. White House adviser Kellyanne Conway said she would leave the administration at the end of this month on family grounds.

The Fed’s July meeting minutes last week barely made a mention of its policy outlook. The Federal Open Market Committee released minutes from its last meeting, the tone of which was more dovish than expected.

The coronavirus crisis will see the world’s biggest firms slash dividend payouts between 17%-23% this year according to a new report. Tech and telecoms and healthcare were relatively unaffected, with dividends up 1.8% and 0.1% respectively on an underlying basis.

The UK and the EU made hardly any progress towards a post-Brexit trade deal on future ties this week. Their top negotiators point the finger at each other for the lack of given the limited window of opportunity. On a side note, Britain’s public debt went above 2 trillion pounds for the first time in July.

LQDFXperts – Monetary easing essential for the economy to heal

EUR/USD pushed close to the 1.20 level but was unable to consolidate and showed little movement over the week. Last week the dollar index fell to the lowest in more than two years. The greenback escaped a ninth consecutive weekly decline that would have marked the longest losing streak since the summer of 2010. Concern about the U.S. economy, combined with an excess supply of dollars already in circulation due to the Fed’s massive quantitative easing, are likely to weigh on the U.S. currency in coming weeks. Unless the US economy shows significant improvement, the euro could rebound against the dollar this week.

GBP/USD showed considerable volatility throughout the week but ended the week unchanged. With no major British events this week, it could be another quiet week for GBP/USD.

Dollar/yen moved lower last week, erasing the gains made in the previous week. On the fundamental front, the focus will be on Japanese inflation indicators. With the Japanese economy limping along, there is not much to attract investors to the yen.

AUD/USD posted gains but was unable to consolidate and ended the week with small losses. The Aussie has steadied in August, after posting strong gains in recent months. It could be another quiet week for the pair.

The Canadian dollar had another winning week, as USD/CAD touched a low of 1.3133, its lowest level since January. With Canada posting some good numbers, the loonie could make further gains against the greenback.

The week ahead – Fed, BoE under the spotlight

Last week data showed a strong uptick in U.S. business activity. The US data contrasted with weakness in the eurozone as an August batch of European business surveys pointed to a stuttering economic recovery.

Investors will turn their focus this week to the Bank of England and any signs it may be willing to cut interest rates below zero.

  • On Tuesday (25.08) investors are waiting for the Bank of Japan Core CPI providing details and shedding light on the third-largest economy in the world.
  • Investors also turn their attention to the German GDP (Tuesday), the US GDP (Thursday) and the French and Canada GDP on Friday (28.08). The final releases will most probably confirm the initial data, so the market reaction will probably be muted.

Follow this week’s economic calendar.

PLEASE NOTE The information above is not investment advice.

Sources: Reuters, CNBC, BBC, The Guardian