Lively week before Europe goes on holiday


As Europe begins it summer holiday, there’s been some interesting developments in the markets last week. 

The dollar reigned supreme for most of last week as the markets oscillated between optimism and pessimism as worries over the spread of the delta variant ebbed and flowed. Sterling, as befits a beta G10 currency rode the wave of changing market sentiment, mostly ignoring the mounting number of Covid cases, the ‘pingedemic’ and the escalating disagreements with the EU over the conditions regulating trade in Northern Ireland.

The week’s highlight was the press conference after the monthly European Central Bank meeting, during which Christine Lagarde reiterated the decision of its recent strategic review to target inflation at 2%. Unlike the US and UK, whose primary concern is getting inflation down towards this level, the ECB will most probably have to replace its version of Quantitative Easing the PEPP scheme. The market certainly took this view, and the euro suffered as a result losing ground generally and has opened again this morning below $1.1800

There continue to be some signs of splits in the major central banks between those worried by the threat of inflation and those that see the recent surge as only transitory. Last week the doves won out in the ECB despite the powerful voices of the Belgian and German Central banks raising doubts over the policies that are being adopted. There also appears to be disagreement, judging by their recent speeches, arising in the Bank of England between the openly hawkish members (Michael Saunders and Dave Ramsden) and the markedly dovish (Jonathan Haskel and Ben Broadbent). This week it is the turn of the Federal Reserve to hog centre stage with their monthly Federal Open Market Committee meeting on Wednesday. Although it is unlikely that any policy change will be announced, every word in Jerome Powell’s press conference following the meeting will be studied for hints concerning tightening. It is also month-end this week, and with a tsunami of data due from the US, it should be a good week for those that like volatility!


It looks like a quiet week ahead for sterling with no domestic economic data of any importance on the agenda for release and only the Bank of England’s Dr Gertjan Vlieghe slated for a speech. Sterling is again most likely to be buffeted by the dollar’s strength and could be vulnerable to a further dip, especially if the Federal Reserve’s meeting on Wednesday is perceived as more hawkish than anticipated. Despite the apparent slowing of the spread of the delta variant, the effects of the almost total easing of lockdown are still to be fully felt. These worries will keep investors nervous, as will the so-called “pingdemic,” which is starting to affect supply chains, which may cause the economy to suffer slight setbacks. The ongoing issues with the EU over Northern Ireland, which still show no sign of a satisfactory outcome, could also start to become more troublesome to the pound. However, this morning sterling is still trading up near its highest levels of last week at €1.1675.


With most of Europe either on vacation now or preparing to go, there could be more volatility in the single currency in the week ahead than usual due to thin markets and a plentiful amount of macroeconomic data to digest. After the split in the ECB became apparent last week over its policy to target inflation at 2% for years ahead, the publication of the flash July Consumer Price Index on the last Friday before August will be studied with interest. However, even if it is above the ECB target, it is almost certainly a transitory number and will be quickly discounted. Of more interest will be the second quarter Gross Domestic Product (GDP), also released on Friday, which is expected to show that the Eurozone has technically exited from recession. The flow of data starts later this morning with the July German Ifo Business Climate survey. Next up is the GfK German Consumer Confidence survey on Wednesday and the Eurozone confidence surveys for July on Thursday. Thursday also sees the release of German Unemployment figures and Consumer Prices.


As always, the US is likely to dominate the show in the upcoming week, with Wednesday’s meeting of the Federal Reserve Open Market Committee and two major data releases. The Fed is exceedingly unlikely to signal any immediate tightening, with analysts generally agreeing that the Jackson Hole Symposium in late August is the most likely backdrop for any tapering to be announced. However, with the US, so far at least, not suffering as badly as the rest of the world from the Delta Variant and with most inflation-related data firmly in the red zone, the tone of Jerome Powell’s press conference is likely to encourage thoughts of tapering sooner rather than later. Ahead of the FOMC, we have the release of New Home Sales later today to study and then Durable Goods Orders and Consumer Confidence tomorrow. Then following the FOMC on Wednesday, Second Quarter Gross Domestic Product and the weekly Jobless data are reported on Thursday. GDP could prove to be a psychological turning point if, as predicted, it is above 9.5%. At or above this level, it would signal a return of all the output lost to the pandemic. Finally, the month closes with one of the Fed’s chosen inflation measures, Personal Consumption Expenditure, on Friday. All of which should make for a lively month end!


The Swedish krona was once again very much rangebound against most G10 currencies as the majority of Swedes were enjoying their summer holidays. This week is expected to be a quiet one, with most people returning to the cities and work the first week of August. Thursday is somewhat of a super-day with Consumer & Manufacturing Confidence surveys being released alongside the latest GDP figures and the unemployment rate. The latter is expected to sit uncomfortably high at 9.8%.

Over in Norway, the summer lull has the currency as well as the country in its grip. This week we will pay extra attention to the Unemployment figure out on Friday. It is expected to come in at 2.9%.