GBP : All Eyes on The Fed

(Thu, 27 Aug 2020). The Pound is slightly better bid this morning despite reports overnight that Germany have scrapped plans to meet with EU ambassadors given the lack of tangible progress in trade talks. To my mind, the current trade talks reminds me a lot of the 2019 Brexit saga and with the official deadline in 2-months’ time, while the clock may be ticking, in the world of politics, 2-months is a lifetime. In turn, the base case remains for a basic trade deal, however, this will not be without short-term uncertainty to get there and thus expect upside in the Pound to be hard to come by until a deal is reached. One point to make is that with EU-UK trade talks at an impasse, a misconception is to look at GBP/USD and assume that little Brexit risk premium has been priced in, the Brexit Barometer, EUR/GBP has traded within a range for the past 3-months.



A rather quiet week ahead of the main risk event, the Jackson Hole Summit. Markets have been gearing up for a dovish Jay Powell (speaking at 14:10BST) in a move to average inflation targeting following the Fed’s strategy review is baked in the price. That said, the question now turns to whether Fed Powell can provide enough to meet the dovish appetite that markets require. While the risk of disappointment is notably higher, I wouldn’t like to fight the Fed. Failure to meet dovish demands, then expect to see a pullback in the consensus trades of bearish dollar, US yields and bullish US tech. However, enough dovish signals to keep momentum going, expect cross-JPY to push higher, notably GBP/JPY with the added month-end flows talked about Tuesday.








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