November 2020

Will we have an early present of a Brexit deal?

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Good Afternoon, the end of last week saw the Thanksgiving holiday in the US, which brought about a quiet end of the week in FX markets. To us, this also marks the start of the festive season, with the new (and some might say unwelcome) tradition of Black Friday and Cyber Monday, as a precursor to entering the period of advent tomorrow.

The main focus on the markets though, won’t be opening the first window of our advent calendars, but the progress of Brexit talks, with time now getting very tight for a deal. There were some hopeful headlines over the weekend, but the ebb and flow of rumours coming from both sides over the coming days will be the main driver of currency markets, and the pound in particular. We appear to be making progress over fisheries, but both sides have been relatively tight-lipped as face to face talks have commenced this morning.
 
Aside from the short-term Brexit focus, any COVID-19 related news and further vaccine updates will have an impact on global risk appetite, and we have a fairly busy week on the data docket. The Reserve bank of Australia (RBA) latest rate announcement is released overnight tonight, a host of central bankers are speaking throughout the week and a raft of US data towards the back end of the week, culminating in the latest non-farm payroll numbers being released on Friday.

GBP

Last week’s updated forecasts from the Office for Budget Responsibility (OBR) offered the most detailed estimate yet of the impact on public finances and the economy amidst the COVID-19 pandemic. An expected Gross Domestic Product (GDP) showed a decline of 11.3% and a public sector deficit of £394bln for 2020/21. Despite this deficit, Chancellor Sunak raised spending for the next year as he underlined the immediate priority to combat the pandemic and preserve jobs. Sterling did end the week lower, penalised for the continued ongoing differences in Brexit negotiations. With face-to-face talks set to resume as we enter what has been described as a crucial week, markets remain cautiously optimistic about the likelihood of a deal.

EUR
The euro closed its strongest week for a while as EUR/USD is in touching distance of the psychologically significant $1.20 level. The single currency shrugged off sub-par data and has been edging higher as news of COVID-19 vaccines and central bank stimulus raises hopes of an economic recovery next year. A busy week ahead for data statistics as inflation, employment and retail sales for Germany and Europe as a whole are due for release. ECB President Lagarde and several of her colleagues are also scheduled to speak this week.

USD
US economic data has been a mixed bag recently, however, on balance it suggests that activity has slowed overall. US November PMI data unexpectedly rose but there was a big increase in weekly jobless claims. Thanksgiving holidays cut the week short for US participants but the dollar is in for another busy week as Fed Chair Powell and Treasury Secretary Mnuchin will testify to Congress about the effectiveness of policies designed to offset the economic impact of the virus. With the two not exactly seeing eye-to-eye recently, this could be an interesting one. Labour market data and US non-farm payrolls are the other highlights.

Scandi 

SEK initially had a strong week touching new highs for 2020 against the EUR but the normally mundane and calm Riksbank Governor took everyone by surprise on Thursday. As expected, the repo rate was left unchanged, but it was announced that the Riksbank was going to expand its asset purchase programme by SEK200bn to a total of SEK700bn. The market had expected an expansion of SEK100bn only. SEK weakened immediately and was hit with further comments about the possibility of a return to negative interest rates and that rates would at least be at today’s level for years to come. It is worth noting that two Riksbank voting council members did not vote in favour of this expansion. Growth estimates for 2021 were reduced too. We are now officially entering into what is historically and normally SEK’s strongest month and it will be interesting to see what kind of appreciation will be acceptable for the Riksbank. This week is very calm and the only set of data we will pay attention to is the Swedbank PMI Manufacturing survey on Tuesday. It is expected to come in at 58.0.
NOK ended the month of November on a high note gaining ground against all G10 currencies and becoming the top performer. This week is very calm for NOK too with Tuesday being the only major date when the DNB PMI Manufacturing survey is released. The market is expecting a reading of 53.0, i.e. an expansion.

Its not over till its over

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Good Morning, with apparently little substance or follow up to President Trump’s allegations of fraud and general dishonesty in the recent election, the markets turned their eyes back to the narratives of COVID-19 and Brexit and last week generally traded in a very narrow range.

At present, there is a push/pull battle for risk sentiment with the damage being inflicted by COVID-19 fighting the positivity of the arrival of a vaccine.

As risk sentiment moves, so do the beta currencies such as sterling although, of course, it has its own narrative as Brexit struggles on with the participants from both sides starting to look like punch drunk fighters entering the last round of a championship fight.

The week ahead looks no different to the last few, with the markets locked seemingly in a narrative purgatory with the same issues over COVID-19, stimulus packages and Brexit dominating currency movements. With America set to enjoy a shortened week with the national holiday of Thanksgiving Day on Thursday, it is likely that eyes will be focused on this side of the Atlantic and of the Brexit negotiations. The market is still confident of a successful outcome, but as time runs out the possibility of a temporary agreement grows.

UK

Sterling has edged up slowly over the last week and ended slightly better against the euro at €1.1175 and also stronger against the dollar at $1.3279. These moves partly reflected optimism over the likelihood of a trade deal, but also the fact that it looks increasingly likely to be a “soft” agreement with elements possibly having to be agreed at a later date. The risk to sterling is now that an agreement is fully priced in at these levels, its potential for appreciation may be limited. Away from Brexit headlines, there is very little data out apart from the preliminary November sentiment indicators (PMI) today.

Euro

During the last week, frictions over the EU budget and the distribution of the recovery fund emerged, with Hungary and Poland playing hardball and stalling the process. This confrontation weighed on the euro, as did the threat of ECB verbal intervention as the single currency rises, but it still managed to close up on the week at $1.1880 against the dollar. It is likely that a compromise will be reached eventually, but in the meantime, it looks that the euro isn’t fully pricing in the risk of further disputes. As with sterling, there is only really one story, Brexit, which as we said earlier optimism now abounds for a satisfactory outcome to the trade negotiations. Today sees the release of preliminary sentiment indicators which are expected to be dismal as new containment measures take their toll. On Tuesday, the 3rd quarter GDP is released in Germany. After a busy week last week, Christine Lagarde is speaking again as is Isabel Schnabel.

US

The market looks set to continue trying to balance the dichotomy of COVID-19 still raging through the States against the optimism of the vaccine which will probably lead to the dollar staying in a relatively narrow range next week. With Thanksgiving at the end of the week followed by Black Friday, it’s unlikely that too much will unsettle the markets but the simmering row between Treasury Secretary Mnuchin and Federal Reserve Chairman Jerome Powell over the emergency lending programme may upset the apple cart. The Federal Reserve will have plenty of opportunities to voice its point of view this week with Mary Daly speaking Monday as well as John Williams and Richard Clarida on Tuesday. As with the rest of the world, PMI’s are released today and Wednesday. We have a busy week of data, with the release of Durable Goods, 3rd Quarter GDP and October’s Personal Consumption numbers. Finally, on Wednesday the minutes of the last Federal Open Market Committee meeting are released which we will study for any hints regarding further easing.

Scandi

SEK was rangebound last week but this week may prove to be more volatile. The Riksbank is expected to leave rates unchanged on Thursday, but it is unlikely that is going to be a key driver for the currency. The markets will closely watch any change of tone to a more cautionary one given that tougher COVID-19 restrictions have been put in place by the government. We will also get an important Economic Tendency Survey on Thursday together with the latest PPI figures. On Friday we will see whether the Swedish consumer was out shopping in October as retails sales are published and the GDP figure is released. The latter is expected to have shrunk 3.6% on a year-by-year basis, but have shown growth of 4.3% quarter-on-quarter.
NOK also traded sideways throughout most of last week and this week’s only important data release is the unemployment rate out on Friday. It is expected to have increased slightly to 4.0%, up from 3.5%.
Danish authorities have confirmed that the COVID-19 mink variant now is ‘very likely extinct’. So far the mass killing has only impacted politics with the minister of food and agriculture, Mogens Jensen admitting that the government did not have the authority to order all minks dead, particularly the healthy ones. The EURDKK peg remains intact and the Danmark Nationalbank has not acted in anyway.

ROW

The aussie had a mixed week but finished generally stronger apart from against its closest rival the kiwi. At the moment the currency is driven by the simmering tensions with China and the Royal Bank of Australia’s policy and we will be listening for any clarification from Deputy Governor Lowe on Tuesday. The loonie is enjoying the relative stability in oil prices and positive domestic data and with little on the data docket next week this looks set to continue. Closer to home the Swiss Franc has been reacting to the ongoing spat over the euro recovery fund and as a safe haven currency, it will appreciate further if sentiment internally in Europe continues to worsen.

Time for a Brexit breakthrough?

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Good Morning, last week the markets switched their attention away from the recent US election and started reacting to COVID-19 derived headlines. Risk sentiment see-sawed during the week and will continue to be the primary driver of currency moves.

Initially, the stock markets went to the moon on the news that Pfizer had developed a COVID-19 vaccine that was at least 90% effective. As stock markets rallied risk sentiment improved and beta currencies such as the pound rallied. As the week progressed the market mood soured as the realisation hit that there is a likelihood of more economic setbacks before the vaccine can make a difference. Europe now has widespread lockdowns as the second wave of the virus rampages through the continent but more troubling for the markets is its spread in the United States. Whilst Donald Trump has been in charge, the economy has been kept running but the market’s worry is whether Joe Biden, if he becomes President, will implement widespread lockdowns.

In the coming week, we expect currencies to remain mainly event-driven with the same three stories, as in recent times, dominating. Firstly, the uncertain political backdrop in the US is still rumbling away in the background, with allegations of fraud, legal cases and recounts continuing. Secondly, with American COVID-19 cases increasing exponentially, the fear of post-Thanksgiving lockdowns in the US is starting to permeate through into the markets. Finally, after another week of seemingly little progress, there is a sense that we may, at last, be approaching the end game in the Brexit trade deal negotiations as they increasingly becoming time-critical. With plenty of unpredictable themes set to drive the markets this week, we will be here to help, giving you insights on how this could impact your currency requirements and how we can mitigate these risks.

UK

Sterling traded in quite a narrow range last week, finishing at $1.3150 against the dollar, after touching a high of $1.3250 and at just above €1.1100 against the euro. As we enter the second week of lockdown in the UK the infection numbers seem to be dropping and attention is starting to switch to Number 10, where Boris Johnson has been forced to self-isolate. After two hardline Brexiters, Dominic Cummings and Lee Cain left last week there is an increased sense that the land is being prepared for a relatively soft Brexit deal. Time is really running out now to get any free trade agreement ratified by both parliaments and the feeling is that a deal needs to be agreed in the next couple of weeks, if not sooner. As always with Brexit, it is best not to rule out a surprise and we will, of course, be watching the headlines closely. There is not a lot of data being released in the coming week apart from October’s Consumer Price Index on Wednesday and October’s Retail sales on Friday. The Bank of England is also busy with Andrew Bailey, Dave Ramsden and Andy Haldane all set to speak.

Euro

The market shrugged off some dire economic figures from the Eurozone, allowing the euro to have a relatively good week, touching at one point a two-month high of €1.1920. Buyers have been encouraged as lockdowns seem to be leading to a flattening of coronavirus curve. If this flattening continues the opportunities for opening of economies in the run-up to Christmas will increase and Europe’s economy, and the euro, will benefit whilst the US flounders. As with sterling, the euro will benefit from any Brexit breakthrough but, as we have seen recently, once it approaches $1.2000 the ECB will verbally intervene to try and cap any advance. The EU virtual summit on Thursday could be the platform for an announcement regarding Brexit. Plenty of speakers from the ECB this week, with Christine Lagarde scheduled to speak every day apart from Wednesday! There is not a lot on the Eurozone data docket this week with just October’s Consumer Price Index on Wednesday and Consumer Confidence on Friday.

US

Donald Trump has remained relatively quiet in the last week, however, he has still yet to concede defeat. Whilst the media and most of the market are assuming that Joe Biden will be the next President, it is still not finalised, and States have until December 8th to resolve disputes. Away from politics, the dollar will again be driven by switches in risk sentiment most likely caused by COVID-19 derived headlines. New York and Chicago are taking steps to try and halt the spread of the virus, whilst elsewhere it is verging on being out of control with patients in the Midwest being unable to find hospital beds. With Donald Trump unlikely to impose restrictions it will be down to local governors to decide but many consumers will have made their mind up and will stay at home. There are plenty of speakers from the Fed this week, who are likely to reiterate the same mantra of “whatever it takes” whilst hinting at further intervention if necessary.  A relatively quiet week on data with just October’s Retail Sales, released on Monday, and the Thursday’s employment numbers catching the eye.

Scandi

The Swedish krona had a roller-coaster week, initially strengthening against all major currencies and then weakening rather spectacularly on Friday. What started the sell-off on Friday was a report from the Riksbank saying that annual growth from the Nordic countries’ largest economy was lower than initially publicised which was followed later in the day by the government of Sweden imposing new COVID-19 related restrictions. Restaurants, bars, and nightclubs must now shut at 22:00 until the end of March, thus affecting the crucial festive period. This week, we will watch for the unemployment rate out on Thursday
The Norwegian krone also had a volatile week, after initially strengthening but then lost ground towards the end of the week and practically finished unchanged. On Tuesday, we will get the consumer confidence indicator which will tell us whether we can expect festive cheer from the retail industry post-Christmas, or not. We will also get the GDP figure on Tuesday.

Over in Denmark, the decision to kill 17m minks in the country was taken by the government after a mutation of the virus was found in them. Denmark was until last week Europe’s largest fur producer and the industry turned over almost $1bln 2018-2019. Experts predict that 1,000 farms will now close permanently affecting 6,000 jobs. We will monitor any statements from the Danmarks Nationalbank and the finance minister Nicolai Wammen closely this week.

ROW

The Australian dollar had a relatively quiet week last week as the country seems to have got the second wave of Covid under control we will be watching closely for signs of a further deterioration of their relationship with China. This week the Royal Bank of Australia’s Governor Philip Lowe is speaking, and we will be keeping an eye out for the unemployment figures on Thursday. The yen traded at just above 103 on the vaccine news last week but as the week wore on its own COVID-19 spike started to concern markets and the currency eased. The Canadian dollar was driven by movements in oil and as West Texas Intermediate (WTI) turned south the currency followed. With no economic data to drive the loonie this week, it will again most likely track the oil market.

Glory days for Joe Biden

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Good Morning, as was widely predicted, the US election dominated the markets for the whole of last week, and the continued fallout from it is expected to carry on driving sentiment for some time to come.

Currencies remain volatile and until the shape of the Biden Presidency becomes clear, and the seriousness of Trump’s legal challenge emerges, we are in for a further period of instability.

The dollar eased quite sharply against sterling, the euro, the yen and in particular the high beta krone, which saw an appreciation of nearly 4%, as risk appetite returned. Even if Donald Trump continues to contest the election, markets seem confident that Joe Biden will prevail and they have high hopes for the US to slowly return to the status quo of a less protectionist country which is, of course, a positive for global trade.

Looking ahead, we are going to carry on being overshadowed by the same stories as in the recent past, in what seems like another Groundhog week with the Presidency, COVID-19, and Brexit being the drivers. The Biden blue wave, that many were predicting, did not quite materialise, and sadly there is a deadly second wave of COVID-19 sweeping through the UK, Europe, and the US. With an increasing number of countries entering lockdown, economies will carry on suffering not least the UK. The last worry for the markets is Brexit, where most investors are now more hopeful of a last-minute deal being the outcome. The consensus view is that with the Brexit negotiations now entering what surely must be the end game, the hit that our joint economies are currently taking will intensify pressure on the negotiators to reach a compromise.

UK

Sterling gained ground as the dollar weakened last week, ending the week nearly 2 and a half cents better, at $1.3150. This move was almost entirely dollar-driven as investors turned a blind eye to the UK’s domestic challenges. Against the euro, sterling also strengthened slightly to sit around €1.1100, where it has opened this morning. The ongoing Brexit talks are now nearing a conclusion and continue this week in London with a semblance of a deal being hoped for in the near future. With both sides facing ongoing COVID-19 induced recessions, an eventual deal is now broadly expected as the damage both politically and economically of a no-deal is too dangerous to contemplate. Data wise, this week we have the latest employment data on Tuesday, but it is unlikely that too much will be read into these numbers as the furlough scheme, which distorts the numbers, has been extended. Later in the week, on Thursday, the most recent Industrial and Manufacturing Production numbers are released along with preliminary third-quarter Gross Domestic Product (GDP). Bank of England Governor Andrew Bailey is also speaking today and Thursday, again we will be listening out for any hints on the likelihood of negative interest rates.

Euro

The euro, as did most currencies, appreciated sharply against the dollar last week as investors warmed to the idea of a less protectionist and confrontational post-Trump world and have been trading up near the €1.1900 level. With the ongoing second wave shutting many eurozone economies, the rise is likely to be relatively short-lived and probably capped around the €1.2000 level, which has recently been the trigger level for the ECB to start to talk it down.  On the data front, the week ahead sees the release of the November Eurozone Sentix survey and the German ZEW economic sentiment survey on Tuesday, then Eurozone GDP on Friday. Towards the end of the week, the ECB is holding an economic forum where all the major central bankers are speaking, including Christine Lagarde (ECB), Andrew Bailey (BoE) and Jerome Powell (Fed).

US

President-elect Joe Biden gave his victory speech in Wilmington on Saturday and now all eyes will be on President Trump’s, who spent the weekend seemingly playing golf. Whatever the outcome, the country remains deeply divided as almost certainly does the Senate which will hamper Biden’s ability to govern. Looking beyond politics, last Friday’s US jobs report almost got lost amongst all the focus on the election, but the October figures were strong with 680,000 jobs created, although the overall number is still 10 million less than February. With COVID-19 continuing unabated in the US, with cases running at over 120,000 a day, there is a growing risk of local and state lockdowns returning which will cause another rise in unemployment. As on this side of the Atlantic, there is still a reluctance for businesses and consumers to return to normal and this knock-on effect in confidence will lead to worsening employment numbers. America has a public holiday for Veterans Day on Wednesday and there is very little data out this week, apart from October’s Consumer Price Index (CPI) on Thursday which is announced at the same time as the weekly jobs report.

Scandi

The return of risk appetite did assist beta currencies, as expected, in their bull run towards the end of last week. EURSEK is now back trading at levels last seen in mid-august and a so-called ‘Santa Claus’ rally may even strengthen the krona further. As mentioned in last week’s update, December is historically a krona positive month. This week we are watching out for the Consumer Price Index (CPI) out on Thursday. It is not expected to have changed significantly and with this figure being the only important data release this week, it is more likely that the general atmosphere on the markets will impact the krona’s movements.
The Krone, on the other hand, suffered at the beginning of last week but managed to regain ground towards the end of it. This week we are watching the CPI figure out on Tuesday which is neither expected to have changed on a month-by-month nor on a year-by-year basis. The most interesting set of data to be released from Norway this week is the GDP figure which is expected to finally show some growth on a quarter-by-quarter basis, growing from -6.3% to 5.2%.
South of the border, a mutated version of COVID-19 has been discovered on a mink farm in Denmark. Although it is too early to say whether this developing story, it may cause Danmarks Nationalbank to take action, we will keep a close eye on those developments since it may impact the wider Nordic region with tighter restrictions or complete closures.

ROW

As with all G10 currencies, the yen benefited from the return of risk appetite last week and is now trading comfortably under 104 against the dollar, however, the trade-weighted yen is still some 4% off its March highs against its closest neighbours. As expected, the hypersensitive aussie gained as risk sentiment improved and with no data or speakers scheduled it will remain driven by external factors as will the kiwi. The Canadian dollar rose on the back of the election as well as better than expected unemployment and again, like all the G10, will remain driven by the fallout from the US Presidential election.

Nervous times with Covid-19

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Good Afternoon, last week the markets became increasingly nervous as COVID-19 infections continued to increase exponentially in the UK, the US and across Europe threatening the already fragile recoveries.

As nerves increased risk sentiment decreased, the dollar benefited, and Sterling gave back most of its Brexit bonus bounce to end the week just above $1.2900.  However, it fared better against the euro and is trading at €1.1075 this morning. With new lockdowns announced on both sides of the Channel, the pressure is increasing on the Brexit negotiating teams and over the weekend there were tentative signs that an agreement on fishing was within reach.

In the week ahead, we are expecting the influence of the Brexit negotiations on the currency markets to slip as all eyes focus on tomorrow’s Presidential election in the US. After months of campaigning the outcome is still far from clear although the pollsters are clearly favouring a strong victory for Joe Biden. Whether Donald Trump will accept losing and resist contesting the result is far from certain and the subsequent ructions would unnerve the markets. With the three swing states of Michigan, Pennsylvania and Wisconsin not even starting to count postal votes till tomorrow and there is a strong possibility that the election result will not be known for some days after polling closes and if contested not for weeks or months. Away from the election, there is quite a week ahead with plenty of central bank activity for the markets to watch out for and what is potentially a tumultuous week will come to a close with the all-important jobs data from the US on Friday. With the likelihood of a very volatile week ahead, we will be working diligently to ensure all your currency needs are looked after.

UK

With last Saturday’s not unexpected announcement of another lockdown in England, the first response to it from the Bank of England will come this Thursday when they have their scheduled meeting. It is probably too soon after the lockdown announcement for them to have prepared a full economic forecast, but it is thought likely that they will increase their asset purchases by another £100bln and the press conference should contain more insights than normal. The markets will also be watching for any further hints on the introduction of negative interest rates in the not too distant future. With lockdown unlikely to end completely after its initial four weeks, sterling will remain vulnerable, however, the recent eerie silence from the Brexit talks and with mounting pressure on both sides, there remains the possibility that good progress is being made. There is not a huge amount on the data docket this week apart from the latest information on the Purchasing Manager’s Indices on Wednesday.

Euro

Not for the first time, the euro will be driven by the same set of factors as sterling. With COVID-19 induced lockdowns being reintroduced across much of Europe the advances reported in their economies are already outdated. Last week Christine Lagarde made clear that the ECB will offer more stimulus in December and the only question is how much it will be and what it will look like.  We will be looking for clues on their plans on Thursday when several speeches from the ECB members are scheduled. On the data front, in common with the rest of the world, the latest PMI’s are released on Wednesday and Eurozone Retail sales are out on Thursday but with the reintroduction of lockdowns, these figures are sadly already outdated.

US

There are at least four possible outcomes to tomorrow’s election despite both candidates spending hundreds of millions of dollars on campaigning. The most likely outcome, according to the polls, is a blue wave with Joe Biden winning convincingly, retaining control of the House of Representatives, and gaining control of the Senate. This result would be risk positive and the dollar would drift lower. The second scenario is one where Joe Biden wins but fails to win the Senate and his policies are consequently watered down and as in the first scenario, the dollar would again drift lower. The third scenario is that, against all odds, Donald Trump wins again and with his predilection for geopolitical confrontation risk sentiment becomes increasingly negative forcing the dollar to rise as safe havens are sought. Finally, the worst-case scenario of a contested result which would lead to a sharp drop in risk sentiment and an appreciation of the dollar. As if the election wasn’t enough to occupy the market, we will also be watching for the Federal Reserve is meeting on Thursday and on Friday the, normally, all-important Non-Farm payroll jobs report is released.

Scandi

The krona ended the month on a positive note and up against all G10 currencies apart from sterling and the yen. We are now entering a period which historically speaking is positive for the krona with tax planning influencing its direction. Readers will remember that krona is a Beta currency which performs well when there is a ‘risk-on’ atmosphere. Thus, the krona may be particularly vulnerable on and around the days of the American election depending on the actual result and how the market reacts. This week kicks off with the Swedbank Manufacturing PMI survey. On Thursday we will watch the Industrial Orders and Service Production data from September followed by the Budget Balance on Friday. 
Over in Norway, Thursday this week will be particularly important with a Rate Decision from Norges Bank. The market is not anticipating any changes in the monetary policy from Governor Olsen, however, rumours in the financial press keep on hinting that an increase in interest rates and an end to the stimulus package may come sooner than the market is anticipating. On Friday, the Industrial Production figures for September are released.