March 2021

Good Morning, Sterling had a relatively quiet time last week, mostly avoiding the buffeting that other currencies received from the resurgent dollar. As was expected, markets were dominated by central bank speakers, who took to the stage nearly every day.

Dominating the market were the thoughts of Federal Reserve Chairman Jerome Powell, who again projected a mood of benign neglect over the prospects of inflation roaring ahead, instead choosing to focus on the importance of achieving full employment.

For the time being, the markets seem content to accept this potential trade-off, and the dollar gained around a cent on the euro, pushing it to $1.1775 against the single currency, where it has opened this morning.

We have holiday-shortened weeks ahead of us for the next fortnight, as the Easter Holidays start, which will come as a welcome relief to many after a tough first quarter. With month and quarter-end on Wednesday, there could be more volatility than usual as large institutors rebalance their portfolios. This volatility will be exacerbated by the extra-long weekend ahead, and we will be watching this for its impact on an already weakened single currency, which could be particularly vulnerable as lockdowns continue to spread and there appears no end to the chaos over the vaccination programme. Also adding to the volatility will be that Europe is closed on Friday when the US releases the critical employment metric of Non-Farm Payroll. In light of these factors, we suggest that you contact your account manager early in the week if you have any requirements over the coming weeks.

UK

Thanks to the vaccine dividend, Sterling was mainly on the side-lines last week, holding broadly steady and has opened this morning €1.1688 against the euro. The data that was released was mixed and still distorted by the latest lockdown. With the first relaxation of social mixing rules today allowing us to circulate more, some economists, including BoE chief economist Andy Haldane, expect the start of a mini-boom over the summer, which has encouraged investors to buy the pound. As the vaccination programme continues, the government’s roadmap is seen as increasingly realistic, and at present, sterling appears the least vulnerable of the G10 currencies. The week ahead is quiet for speakers, with only Michael Saunders and  Silvana Tenreyro from the Bank of England slated to speak. On the data docket, we have Consumer Credit tomorrow and 4th Quarter GDP released on Wednesday.

Euro

Easter holiday’s start this week with much of Europe facing continuing lockdown measures which in several regions are getting stricter. The euro continued to suffer last week from the Eurozone’s incoherent policies over vaccines and vaccination, which has seen less than 10% of the population inoculated, and it looks set to endure some further setbacks this week. With travel to and within Europe severely restricted, the tourist industry faces another disastrous summer unless the third wave slows and vaccinations speed up dramatically. In the coming week, we will be watching this morning’s Business Climate. Tomorrow March’s Economic Sentiment and Consumer Confidence data for the Eurozone are published. On Wednesday, German unemployment data is released, as is the Eurozone Consumer Price Index. The shortened week closes out on Thursday with Purchasing Managers Indexes across the continent and German Retail Sales.

US

The coming week will see President Joe Biden start to push his $3trln “Build Back Better” programme. He is scheduled to outline this plan tomorrow in Pittsburgh, and we will be watching for any reaction by the markets to it and its potential inflationary impact. It’s predicted to be broadly well received, and the dollar should benefit from the positive effect on the economy. As usual in Spring, we entered British Summer Time over the weekend and are now an extra hour ahead of the US markets, and data releases are now an hour later in the day. As always, in the last week of the month, unemployment updates will dominate the data docket starting on Wednesday with ADP’s take on white-collar employment. These are followed on Thursday by the weekly jobs number, and finally, whilst we are enjoying Good Friday, the Non-Farm Payrolls report is released. Hopes are high for a good number, with the headline rate possibly dipping below 6%. Aside from the jobs data, in common with the rest of the world, ISM Purchasing Managers Indexes are released on Thursday.

Scandi

It was a somewhat uneventful week for the Swedish krona, which ended the week slightly weaker than it began. The Riksbank expects inflation to fall short of the 2% target through to March 2024, which has increased speculation that the krona may be rangebound for a more extended period than the market initially expected at the beginning of the year. This week sees no major data releases apart from the Economic Tendency survey, a critical gauge that is expected to have expanded to 105 from 103. Easter starts on Thursday afternoon with a half-day across the banking world and the financial markets.
The Norwegian krone’s week followed its neighbour’s trading pattern, and the political fall-out from Prime Minister Solberg’s misstep from two weeks ago has calmed down. This week sees no major data releases, and Easter starts on Thursday with the banking system and financial markets shut.

Have a great week!

Good Morning, tomorrow marks a year to the day since the UK population was told to stay home, and the first lockdown began. The currency markets (including bonds) are still being driven by the same fears and worries of the economic fallout from that decision.

After a year of often false starts, investors are now watching vaccination levels and their effect on the speed of recovery across the world.

Simultaneously several European countries are re-entering into lockdowns as they battle a third wave of the pandemic. In the last week, we heard how the major central banks are planning to respond to the recovery and how tolerant they are of any upticks in inflation and subsequent rise in interest rates.

The Bank of England appears moderately relaxed towards this prospect, the European Central Bank keen to keep yields low and the US Federal Reserve the most tolerant. Investors showed that they were not as benign in their views as Chairman Jerome Powell, and they sold US bonds, pushing yields higher, unsettling risk sentiment, and strengthening the dollar.

In the week ahead, it is hard to see any significant change to this data narrative driving currencies with the third wave in Europe, adding to the pessimistic risk posture that investors are starting to adopt. For the time being, sterling, as befits a beta currency, will continue to be at the mercy of the king dollar and has opened at $1.3850 this morning. With large swathes of Europe now grinding to a halt again, including France and Germany, the euro is likely to remain under pressure, which may increase as the ECB is expected to continue to support its bond-buying programme further, effectively keeping yields low.

UK

Sterling continues to benefit from the vaccine dividend and has been trading in a relatively tight range against the euro, opening this morning unchanged at €1.1650. As yet, there is scant evidence of a third wave of COVID-19 remerging, which should continue to favour the pound against the single currency, as will the outflows of global capital from Europe that HSBC reported last week. We have a full data docket to digest this week, but after the last Bank of England meeting, it would be surprising if there was a significant change in sentiment caused by any of the figures. Tomorrow the January unemployment rate is released, which isn’t expected to have changed dramatically. On Wednesday, Service Purchasing Managers Indexes and the Consumer Price Index for March are released, which are both expected to show modest improvements. On Friday, February’s Retail Sales are expected to partially recover after January’s sharp fall, but they are unlikely to unsettle the markets. Bank of England Governor, Andrew Bailey, is also slated to speak on Tuesday, but it would be surprising if he added anything to last week’s thoughts.

Euro

The, at best, confused handling of the COVID-19 pandemic and the vaccination programme that has seen less than 10% of Europe inoculated looks set to continue to unsettle the euro. With France, Germany facing a third wave, rising US yields and no great advance in releasing the fiscal stimulus promised last year, problems are mounting for the single currency. Today the market will be watching to see how the ECB responds and if it increases its Bond buying programme and, in doing so, keeps downward pressure on bond yields. We have a whole week of data to digest starting on Wednesday with a first look at the March Purchasing Manager’s Indexes for the larger manufacturing countries, followed on Thursday by GfK’s take on Consumer activity in Germany. We close the week on Friday with the Ifo Business readings also for Germany. There is a European Council Meeting on Thursday which will be an opportunity for the great and the good of Europe to air their views with Isabel Schnabel scheduled to speak.

US

Last week’s price action in the currency markets was driven almost entirely by what the Federal Reserve said, or didn’t say, after its monthly meeting on Wednesday. In doing so, they left the bond market to its own devices, and an upward spike in yields occurred, with the closely watched 10 yr. bond touching 1.75% before easing down. The bond market has traditionally been the driving force behind all financial markets, and fears are starting to increase of them throwing a “tantrum” and selling off sharply and disrupting the stock markets, which will strengthen the dollar. The data docket is a little barren this week, with only Durable Goods released on Wednesday, the weekly jobs report on Thursday, and Personal Income and Spending data on Friday. To make up for this shortfall of data, we have six different Federal Reserve members speaking next week, with Jerome Powell speaking no less than three times.

Scandi

The Swedish krona hit new 2021 lows against the euro and pound sterling last week as the inflation figure came in lower than expected, and the unemployment figure was higher at 9.7%. Whether the positive trend which started in May last year has been broken remains to be seen, especially since we are soon entering what is traditionally a krona positive period. This week we are watching the latest PPI figures out on Thursday and the Retail Sales on Friday.
The Norwegian krone ended the trading week worse than it began, thanks partly to a political faux pas by Prime Minister Solberg, who is seeking re-election in September. She broke her own government’s COVID-19 rules and attended a 60th birthday party with more attendees than the current restrictions allowed, directly affecting her lead in the polls. This week we will monitor any further potential political fall-out caused by her actions together with the unemployment rate, which is out on Friday. It is expected to have come down to 4.0%.

Have a great week!

Good Morning, King dollar came roaring back to rule the currency markets last week as inflation and yields again dominated the headlines.

As we noted previously, the efficiency of the vaccination programme and the speed at which it is being implemented is now raising concerns about the inflationary impact of a rapid bounce back by economies. With spending restricted for so long, investors fear that a glut of money will be chasing supply lines still hampered by COVID-19 restrictions. If this happens, prices will be forced up, causing inflation to reignite. With these fears firmly in mind, bond traders in the US, one of the driving forces behind the currency markets, have been pushing yields higher. As they climb, stock markets weaken, and the dollar strengthens as investors become more risk-averse, causing beta currencies such as the pound and the krona suffer.

Jerome Powell, the Chairman of the Federal Reserve, indicated last week that he is happy that the economy runs hot as his main concern is the level of unemployment in the US which is feared to be touching 10%. The Federal Reserve is now forbidden from speaking ahead of its next meeting on 17th March. Still, his shadow will loom over the markets, which probably means that the dollar will hold its ground ahead of the inflation figures released on Wednesday. The pound has opened below $1.3900, having given up more than a cent over the last week despite the chancellor’s generally well-received Budget and but it has held its recent gains against the euro opening above €1.1600 despite the increasing tensions with Europe over the implementation of the Brexit agreement.

UK

The Chancellor’s budget was generally well-received last week. It helped mitigate the yield-induced dollar strength, somewhat helping sterling be the best performing European currency except for the oil-backed Norwegian krone. Its underlying strength is also helping it shrug off the growing tensions with Europe over the trade restrictions surrounding Northern Ireland. Unusually for the UK, it looks like a quiet week ahead on the data docket, leaving the currency to remain at the mercy of the uncertainty driving the US bond and equity markets. The only noteworthy figure we will be watching out for is the backwards-looking Gross Domestic Product (GDP) figure for January. With the country in lockdown and the future looking radically different now, thanks to the vaccination programme’s success, it is unlikely to move sterling too much. This week’s only speaker of note is Andrew Bailey, Governor of the Bank of England, who is giving a speech this morning.

Euro

The rise in US yields encouraged sellers to test some key psychological and technical support levels of the euro on Friday. These levels failed to hold, and the euro has opened weaker this morning at below $1.1950. So far, the Eurozone has been sending out mixed messages in its response to the bond market sell-off. Whilst Phillip Lane, chief economist of the ECB and its President Christine Lagarde, has been jawboning, Fabio Panetta presented a different view, hinting at yield curve control, a phrase that we may start hearing more often. The week ahead is relatively quiet, with the main event being the ECB meeting on Thursday, which gives Christine Lagarde a platform to express her views on the markets. We also will be watching Industrial production data from Germany on Tuesday and their inflation data on Friday. The only other event apart from the ECB meeting will be the Eurozone Industrial Production which recent surveys have indicated will be a strong number.

US

It is unlikely that the narrative driving the dollar will change much this week after the healthy Non-Farm Payroll figure on Friday, adding fuel to the already nervous market. With President Biden announcing advances in their vaccination programme and fresh financial stimulus soon to be in the populations back pocket, traders will remain nervous of prices pushing up more rapidly than the Fed anticipates. An increasingly nervous stock market will also help keep the dollars strong as risk sentiment is reassessed. The week ahead has no speakers, but we will be watching the Consumer Price Index on Wednesday and Producer Price Index on Friday to get a further take on inflationary pressures and their impact on an already nervous market. The only other item on the data docket that may impact is the University of Michigan’s sentiment index released on Friday afternoon.

Scandi

The Swedish krona is still trading considerably weaker against both sterling and the euro than it did throughout February. One headline which could have caused more harm than it did was the news that the Liberal Party will cease its support for the Socialist-led coalition government in the next general election in the year 2022. Had the announcement been that the decision takes immediate effect, then there is a strong possibility that the krona would have lost even more ground as it might have triggered new elections during a very uncertain time. Therefore, we will now monitor the political situation more closely than before. This week is a quiet one, with the only important data set being the Industrial Orders figures that are out tomorrow.

On the other hand, the Norwegian krone is strengthening and briefly reached parity against its big brother, a level it has not been at since March 2020 when the COVID-19 crisis evolved, and oil started plummeting. The currency has now recovered all ground it lost against the euro too. Monday kicks off with the Industrial Production numbers, and on Tuesday, we will get the GDP figure. It is expected to show a contraction of 0.6% on a Month-On-Month basis.

Have a great week.