The EUR/USD pair bounced from the 1.20 area. This level is confirmed as a floor, and a sharp rise points to further upside. The GBP/USD exchange rate approaches 1.40, and the USD/JPY pair trades close to 107.00. CEE3 currencies underperform due to the worsening of the COVID-19 situation.
The event on global markets in the limelight today will be the reading of the key index indicating the US services' economic situation, i.e. the ISM index. The debt market, which dictates the course of currencies and other asset classes, will be heavily influenced by the reaction to the potential high reading. The components reflecting price trends and employment in the sector will be carefully examined. In addition, attention should be paid to US central bankers' speeches and the NBP decision on the cost of money.
Central bankers tamp down turbulence
The last week before the period of media silence prior to each meeting of the Federal Reserve comes with a real pile-up of speeches and statements, and today we are about to see three more. The US monetary authorities' representatives have so far declared their patience before the policy normalization begins, which investors were not entirely willing to believe. It manifested itself in the dynamic growth of yields spreading to other markets (falling market indices, troubles in emerging economies, stronger dollar).
Yesterday, Lael Brainard of the Board of Governors and Mary Daly of the San Francisco Fed went a step further. The first policymaker emphasized that she would be concerned about further unwarranted, chaotic, sharp increases in debt yields and tightening monetary conditions in the economy. The second referred to potential ways to suppress turbulence: she said that over direct control of the trajectory of the debt yield curve, she would prefer a change in the asset mix in the Fed's hands (e.g., selling two-year securities and buying ten-year securities).
This instrument of limiting the increase in yields of long-term Treasury securities, referred to as operation twist, was already used after the recovery from the Global Financial Crisis, and it was used in 2011, in the era of Ben Bernanke.
Of course, the debt sell-off is a global theme, though it occurs with varying degrees of intensity. It also affects the strength of individual currencies, those whose yields are more heavily chained by weaker growth and policy prospects lose out, with the yen and franc being examples.