RedFX: USD set to weaken? GBP running out of steam

USD: The US Fed kept interest rates at historically low levels (0-0.25% range) last night, and confirmed their intention to keep rates lower for longer – stating the intention to maintain ultra-low rates until 2022. The assertion that rates will remain low came alongside projections that 2021 will see a 5% bounce in GDP, and employment and GDP will return to stable levels by 2022.

The dual-assessment of low rates but improving GDP and employment means that the market will continue to favour equities over bonds, and this could force the USD to fall over the long-term. Alongside this, the fed announced that it will continue to buy bonds – another factor weighing on the USD. GBP/USD has risen from 1.22 to 1.27 in the last 4 weeks, and EUR/USD has risen from 1.0900 to1.1400 – clear examples of USD weakness.

GBP: A stellar run for GBP recently seems to be running out of steam – GBP/EUR was pushing up to 1.1300 recently but is sliding to 1.1100 this morning. OECD warned that the UK will be the major economy hardest hit by Covid-19:

OECD 2020 projected impact upon GDP by country (assuming no ‘2nd peak”)

UK                  -11..5%
France            -11.4%
Italy                 -11.3%
Spain               -11.1%
Germany         -6.6%

Faisal Islam, the BBC Economics Editor, brilliantly observes:
“The bigger point is that the OECD is subtly pointing to the fact that one rescue package is not enough. Late last week the Germans announced a massive 4% stimulus to the economy, including a thumping cut to VAT, and significant subsidies for the purchase of cars. The OECD league table is an invitation to do more. And we will soon enough get actual hard economic data, as opposed to forecasts such as this, when the monthly GDP figure for April - entirely locked down - is published on Friday.”

EUR: Boosted by last weeks action by the ECB and the plan for an EU-wide scheme to support the single-area economy wit ha fund using grants and / or loans. The ECB Chief Economist (Philip Lane) reiterated the “whatever it takes” mantra this morning, with these quotes:

“ECB will do everything it can to ensure the current crisis won't be made worse by a credit crunch.”
“Inflation is still far from our target; QE will still be needed.”

Ahead:
Today’s US employment data will be watched, and tomorrow from the UK we have GDP numbers and Industrial production data – great indicators of the hit seen from Covid-19. To end the week, Confidence data from the US will be published tomorrow.