- EUR/GBP jumps beyond 0.8920 to hit session highs at 0.8925.
- The euro remains bid after a dovish Fed statement.
- Longer-term, EUR/GBP might be heading towards 0.9200 – Danske Bank.
The euro has jumped about 25 pips higher against the British pound to break beyond session highs at 0.8920 following the US Federal Reserve’s monetary policy statement and the grim economic perspectives for 2020.
The statement has been considered dovish by the investors that have reacted by selling the US dollar across the board and pushing the EUR/USD to fresh 3-month highs, which is strengthening the common currency against its main rivals.
The Fed foresees a deep economic contraction for 2020
The Federal Reserve has kept its benchmark interest rate unchanged at 0%-0.25% and dampened hopes of a quick economic recovery. The bank anticipates a difficult comeback after the COVID-19 shutdown, expecting a 6.5% contraction for 2020 with the unemployment level at 9.3% by year-end.
Furthermore, the bank has reaffirmed its commitment to keep the overnight funds rate near zero until, at least 2022 and to maintain the pace of bonds purchases at least at the current levels, that is $80 billion per month in Treasuries and $40 billion per month in agency and mortgage-backed securities.
EUR/GBP: Repricing Brexit premium might push the euro to 0.9200 – Danske Bank
The FX analysis team at Danske Bank expects the pound to remain vulnerable until the Brexit situation clarifies, “We are still of the view that a repricing of the Brexit risk premium will send EUR/GBP higher, mirroring similar events in late 2018 and summer 2019. While we target EUR/GBP at 0.90 in 1-3M, we would not be surprised to see the cross move as high as 0.92.”
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