Is the US recovery stalling

After a week of anticipation, the non-farm payroll report came in at a slightly disappointing level and encouraged sellers of the dollar to reappear. With employment rising at a lower than expected 559,000, the pace of the recovery in the US and the subsequent tightening of economic policy is starting to be questioned by investors.

However, on closer analysis, the problem is not a lack of jobs but a reluctance to return to the workforce.

This hesitancy by workers is leading to a squeeze on wages, although there are nearly 8 million fewer people employed than at the start of the pandemic. This combination of factors presents the Federal Reserve and the currency markets with a problem. The market perceives that the Federal Reserve should be starting to tighten policy to control inflation but is boxed in until employment drops.

Looking ahead into this week, events are likely to be dominated by worries over a possible surge in Covid cases in the UK caused by new variants, inflation concerns, and the monthly meeting of the European Central Bank on Thursday. With new variants occurring and cases increasing, there have been doubts cast over the further lifting of restrictions on June 21st. Still, with most of the country’s businesses open, the damage caused by delay is more likely to be psychological and damage confidence. However, with travel restrictions increasing and the chances of a vacation abroad receding, the euro may become increasingly vulnerable as the southern European countries miss out for a second summer in a row on the UK holidaymaker boosting the local economies. The G7 summit meeting also takes place this week at Carbis Bay in Cornwall to discuss the world’s economic fightback.

UK

The pound flew the flag for the G10 currencies last week against the strengthening dollar and has opened this morning at $1.4140 whilst staying relatively strong against the euro at €1.1620. However, with the government’s Matt Hancock saying yesterday that they were “absolutely open” to delaying the next stage on the roadmap to normality and concerns over the efficiency of the vaccines, worries will start to mount about whether consumer confidence has returned too early. If these fears grow, sterling could well begin to drift lower as the concerns of a stagnant economy and rising inflation come to the fore. this week Andy Haldane is slated to speak, who is always thought-provoking and maybe more so than usual as he is soon to be free from the current constraints of his current role as Chief Economist of the Bank of England. On Friday, we will be studying how the economy is performing when both Industrial and Manufacturing data are released, along with a snapshot of April’s Gross Domestic Product.

Euro

The euro slipped against both the dollar and the pound last week and has opened at just above $1.2150 this morning for what is sure to be a busy week for the single currency. As with the UK, concerns are growing over the spread of the Delta variant across the continent and the impact that the travel restrictions that the UK has imposed on holiday destinations will have on the economy. We have a plethora of data to digest head of the monthly ECB meeting on Thursday starting tomorrow with the ZEW* Economic Sentiment indicators, German Industrial Production and Employment, Eurozone Employment, and its GDP. Wednesday is a quiet day with only regional data to digest, and on Thursday, the ECB meets.

* Zentrum für Europäische Wirtschaftsforschung – Centre for European Economic Research

US

The non-farm data was slightly weaker than expected on Friday, and immediate thoughts of tapering and tightening were returned to the back burner and with them the recent dollar strength. As a result, some analysts think that the greenback may now ease ahead of the next Federal Open Market Committee meeting on June 16th. However, it is unlikely to see too much movement before Thursday when alongside the regular weekly jobless claims numbers, May’s Consumer Price Index (CPI) is released. CPI is likely to show a rise towards 4.8%, its highest level since the early 1990s, and any substantial increase on that forecast rate will reignite the tapering debate. As usual, ahead of the monthly Federal Open Market Committee meeting, Fed officials are in speech blackout mode until after the next meeting on June 10th.

Scandi

Sweden celebrated its National Day on Sunday and last week saw the krona strengthen against the G10 currencies. However, it has so far been a quite lacklustre six months period for the Nordic region’s largest currency which was tipped to be one of the best-performing currencies of this year at the outset. Instead, it has been stuck in quite a narrow range throughout most of 2021. This week will get the CPI figures on Thursday, which are expected to come in at 2% on a year-on-year basis and a positive change of 0.4% month-on-month.

In Norway, the week kicks off with the Industrial Production figures for April this morning, and the CPI and PPI figures are released on Thursday. Inflation is expected to be on the high side, at 2.9%, but that would be lower than in the past four months. If worries about inflation cool off, there is a chance that the market might start questioning whether Norges Bank Governor Olsen will increase interest rates come September as widely is anticipated. This kind of speculation is behind the recent Krone weakness we have experienced.

Sunny start to the month for Sterling

Good Morning, with sunny weather week ahead, UK slowly returns to normality, the currency markets continued to worry last week about the impact of this on inflation and whether Central Banks will be too tardy in their response.

The Royal Bank of New Zealand and the Bank of Canada signaled their intentions to raise rates in 2022, as Dr. Gertjan Vlieghle, a Bank of England’s Monetary Policy Committee member, voiced his concerns. His comments helped sterling spike back towards $1.4200, the top of its recent range, even though his remarks were heavily caveated, However, with the markets shut for holidays yesterday, Friday became the de facto month-end, and rebalancing unsettled the dollar, and it has continued to weaken this morning.

As customary for the first week of the month, the data docket is dominated by the unemployment reports released throughout the week culminating in the all-encompassing non-farm payroll employment report on Friday. The euro has opened at $1.2220 this morning. The Eurozone releases its inflation data ahead of the European Central Bank’s next meeting on 10th June with the central bank prevaricating over their next steps.

UK

Last week, the pound put in a good performance against most of its peers, and this looks set to continue with its opening at €1.1640 this morning. It responded as we said earlier, to the comments from the Bank of England whilst ignoring the political fallout from Dominic Cumming’s testimony about the handling of Covid. London is gradually returning to work, and the comments from Andrew Bailey and his colleagues to the Treasury Select Committee of the House of Commons, on Thursday, will be followed closely for any signs of hawkishness as will his speech this evening. Apart from the testimonies, it is another quiet week for data in the UK apart from the final readings of the Purchasing Manager’s Indexes starting today with those from the Manufacturing sector and followed on Wednesday with Services

Euro

As with all economies, markets are studying inflation and employment data for clues to recoveries and subsequent tightening of rates. This week, it’s the turn of the Eurozone to publish their reports, starting today with the release of its Core and Headline Inflation data for May. After yesterday’s Consumer Price Index releases across the continent, these may surprise the upside. We will also be keeping an eye on German Unemployment data released as this hits your mailbox. The response from European Central Bankers is limited as they enter into a week-long verbal blackout from Thursday before their next council meeting on 10th June. Also released this week, the European Markit Purchasing Managers Indexes start today with their Manufacturing and followed with the other sectors during the week. Tomorrow sees German Retail Sales for April reported as well as April’s Eurozone Producer Price Index. Also released is a report concerning the euro’s international role, which should show the growing use of the single currency on the international stage and may add a little strength to the single currency.

US

After Personal Consumption Expenditure came in slightly higher than expected at 3.1% on Friday, there was some selling of US Bonds, exacerbated by the reports of President Biden unveiling a $6tln budget, leading to higher yields and making the dollar more attractive. It will be interesting to watch how the market trends this week ahead of the key non-farm payroll data released this coming Friday. The 266,000 jobs created in April disappointed the market the last time the figures were reported. This data set will be closely studied for anomalies as there seems to be demand for workers, with supply that is the problem. Before the Non-Farm data, ADP will release their private-sector employment report tomorrow, not always the most reliable indicator, and the weekly Jobless claims on Thursday. Apart from the unemployment data, the ISM business surveys are also out.  A busy schedule of speakers from The Federal Reserve awaits us.

Scandi

The Swedish krona was pretty much rangebound against the euro, and there were no major movements despite data showing that wages increased by 0.1% on a month-on-month basis. Today we will get the Swedbank PMI Manufacturing data and, later in the week, the Current Account Balance and the Budget Balance.  Most traders and market participants expect the delayed krona bull run to make steam this month after May turned out to be one of the least volatile months ever with movements within a 10 öre range against the euro and pretty much a 5 öre range against Sterling.

The Norwegian krone weakened throughout May, and its impressive bull run has been somewhat halted despite rumours about a potential rate hike come September. This week we will get the DNB PMI Manufacturing data followed by the Current Account Balance figure on Wednesday.
We would like to encourage our clients and partners trading with any of the Scandinavian or Nordic countries to start preparing for the month-long summer holiday starting after Midsummer. Should you wish to speak to one of our regional experts about how flows over the summer could be managed most effectively, reach out to your  Account Manager or reply to this email directly.

Is inflation rearing its head?

Good Morning, in an upbeat end to the holiday-shortened week saw sterling (inflation) gain against the dollar above $1.4025, where it has opened this morning.

Several factors helped the pound rally; firstly, the Bank of England presented very upbeat forecasts for both the economy and the level of unemployment as the UK continues to ease successfully out of lockdown. Secondly, the Conservative party performed better than expected in the local elections. Thirdly the dollar fell quite sharply after Friday’s employment data was much worse than expected. Against the euro, the pound traded in a narrow range as the gyrations in the dollar market caused technical adjustments to pricing, and it has opened this morning virtually unchanged at €1.1550.

Over the weekend, election results continued to be announced including, those for both Scotland and London. As expected, London was held by the Labour party, but with a weaker endorsement than previously, and in Scotland, the SNP just failed to capture a majority, but this will not stop them from pushing for a second independence referendum. However, with Boris Johnson holding a strengthened mandate South of the border, he is likely to play hardball over the independence referendum. This week the market will be watching as tensions increase over the post-Brexit trade deal, which flared up into a confrontation over fishing off the shores of Jersey last week. Looking forward, we expect the market to carry on digesting last week’s events before the release of Gross Domestic Product in the UK on Wednesday. There is also a full data docket in the US to look forward to, including inflation as measured by the Consumer Price Index (CPI), which will be keenly watched as a sharp rise is predicted by some analysts.

GBP

After the excitement of the local elections, fishing disputes, and the Bank of England’s meeting last week, it looks like we have a slightly calmer time ahead. The only data of any real import being the announcement of both the Gross Domestic Product (GDP) for the first quarter. As the country has been able to return to its favourite occupation of shopping since lockdown partially ended, expectations are for a good figure. We will also watch the vaccination figures as we approach a further milestone on the roadmap to exiting lockdown the reopening of indoor entertainment next Monday, which will give the economy an additional boost. Alongside the GDP figure released on Wednesday, the latest Manufacturing and Industrial Production data will also be announced. Finally, the Bank of England could expand on last week’s economic forecasts when Governor Andrew Bailey speaks both tomorrow afternoon and Thursday evening. Increasingly his words will be studied for any sign of tightening as pent-up demand hits the economy causing fears of inflation to increase.

Euro

The euro has been performing well against the dollar and has opened this morning at $1.2150 against the greenback. Much of this gain came Friday afternoon after the Non-Farm payroll number in the US led to heavy selling of the dollar. Helping the euro strengthen is the feeling that Europe has now turned a corner in its fight against Coronavirus. Hopefully, it will be able to salvage its summer vacation period and, in doing so, revive its decimated service sector. It’s an extremely quiet week for data up ahead in Europe, and the US data releases will drive the direction of the euro against both the dollar and sterling. There is very little on the data docket this week, and much of Europe will be closed on Thursday for the Ascension Day Holiday. We will keep an eye out for the ZEW surveys on economic sentiment in Germany due tomorrow and its Consumer Price Index on Wednesday, but these rarely move the euro.

US

The Non-Farm Payroll numbers released last Friday were much lower than the consensus expected and resulted in an immediate and continued sell-off in the dollar as the US’s recovery miracle was called into doubt. In addition, the employment data supported the Federal Reserve’s policy of leaving rates lower for longer, encouraging the risk-on mood that took hold Friday afternoon. The dollar’s movements are likely to dominate the currency markets with a US-centric data-heavy week ahead. There are no major data releases due until Wednesday when April’s Consumer Price Index (CPI) is released, which is expected to show a jump to nearly 4% in the inflation rate, which will pressure the Federal Reserve to tighten policy. After the CPI data, it will be interesting how well received the issuance of $41bn 10-year Treasury notes is at the afternoon’s auction. On Thursday, the weekly jobless number is released, and on Friday, April’s Retail Sales and Industrial Production are published.

Scandi

The Swedish krona finished the week off on a strong note against most G10 currencies gaining more than 1% against the EUR on Friday. It was mainly buoyed by the poor non-farm figures rather than any Swedish-related macro data. Monday begins with the Housing Price Indicator for April, and Wednesday will see the latest CPI figure. The latter is expected to come in at 2.2%, 0.2% above the Riksbank’s target, and the first time in more than two years, it has reached these levels.
The Norwegian krone was mainly rangebound throughout most of last week with no significant data releases. Today the latest CPI figures are released and are expected to come in at 3.1%. Norges Bank has a target of 2%, which would further Governor Olsen’s case for a rate hike come September, we will also watch the GDP figures released on Wednesday.

Have a great week.
Synergy Team

Spring is in the air at last

Good Morning All, the first signs that an economic recovery is underway in the UK were seen on busy high streets and roads last week and in figures released by the Office for National Statistics (ONS).

According to this report, CHAPS data showed that spending had rebounded to 91% of the pre-pandemic level and footfall in shops was at 75% of its 2019 level. Hopefully, these figures will continue to grow, and the release of the pent-up demand that the Bank of England has been touting turns into reality. Europe also seems to have turned a corner with its vaccination rate increasing steadily, and whilst still lagging both the UK and the US, it now looks better placed to achieve its targets. The markets remained relatively quiet, taking the good news in their stride, and over the week, sterling held steady against the dollar and has opened at just above $1.3900. The euro rebounded strongly against both sterling and the dollar as traders reappraised their pessimistic positions, and this pushed sterling down below €1.1500 for the time being.

We have a busy week ahead as the month draws to a close with plenty of data to digest and, most significantly, the monthly meeting of the US central bank, The Federal Reserve. After a week of mixed but mostly upbeat economic data, more of the same is expected. However, with new Covid cases in India topping 300,000 daily, fears of another outbreak remain both here and in Europe. The daily vaccination rate will continue to have a marked effect on currencies, especially the pound, due to the UK’s strong links to the Indian sub-continent. The pound may also suffer some political wobbles with domestic elections looming, which could see the SNP increase its share of the vote in Scotland, leading to pressure for another referendum, at the same time as allegations of sleaze continue to surface. As usual, there will be month-end pressures to contend with, exasperated again by a long weekend in the UK.

UK

Sterling was driven as much by technical factors last week as it was by the economic data that was released and, as it is so often, was buffeted by the shift in international demand for the dollar. Being a “Beta” currency, it rose and fell in tandem with US yields and stock markets and eventually settled unchanged on the week, having failed to break above $1.4000. The released data was generally supportive of sterling, good PMIs, strong retail sales, inflation rising, and unemployment creeping lower, reinforcing expectations of a solid recovery in the country. The data docket in the week ahead is empty, and no speakers are scheduled from the Bank of England; however, Ben Broadbent did give a bullish appraisal of the economy at the weekend. With no data for traders to get their teeth into, we expect the pound to be driven by outside forces, especially in the latter part of the week, after the meeting of the US Federal Reserve and month-end rebalancing starts to come into play.

Euro

The euro put in a good performance last week and ended over a cent up against the dollar and a eurocent stronger against sterling. Confidence is returning, as shown by the Purchasing Manager’s reports that were released on Friday. This will be boosted by the increase in vaccination rates and the further good news that the Karlsruhe constitutional court didn’t stand in the way of the ratification of the EU fiscal stimulus plan. We have a raft of economic data ahead of us this week, and seemingly every member of the ECB is also speaking, starting with ECB Chief Economist Richard Lane today followed by its President Christine Lagarde on Wednesday.  This morning, the IFO business climate readings for Germany are released. On Wednesday, consumer confidence data for France and Germany are issued, with a continuation of the positive numbers of last week expected. The Eurozone sentiment and confidence data are released on Thursday, as is the Consumer Price Index (CPI) for Germany. We close the week with potentially market-moving data with Eurozone CPI, Unemployment, and Gross Domestic Product on Friday.

US

The monthly meeting, on Wednesday, of the US Federal Reserve Open Market Committee (FOMC) will dominate the market’s thoughts in the week ahead. Despite the US economy rebounding strongly and unemployment falling, the Fed is unlikely to change its accommodative monetary policy just yet. However, the press conference after the meeting will be listened to for any hints on future policy changes. Ahead of the Fed meeting, sales of US Durable Goods are reported today, and we then have a lull on the data docket until the regular weekly jobless update and the US GDP figure for the first quarter are released on Thursday. The week closes with a frantic Friday when Personal Income, Spending, and consumption data are released. The highlight on the speaker front will be Federal Reserve Chairman Jerome Powell’s press conference on Wednesday after the FOMC. President Joe Biden is also scheduled to speak at a joint session of Congress when he is expected to expand his controversial plans to raise taxes.

Scandi

The Swedish krona was very much rangebound throughout most of last week, and the lack of macro data did not offer any help for participants hoping for more volatility. This week is far more action-packed, with the Riksbank setting interest rates on Tuesday. Inflation has been creeping up lately, but the Riksbank is not expected to increase rates, and many believe that the 0% rate will remain in place for the foreseeable future. The press conference with Riksbank Governor Ingves will be more exciting and one we will monitor closely. The PPI figures and the Unemployment Rate are released at the same time at 08:30. On Wednesday, we will get a health check on the Swedish retail sector, and on Thursday, we will study the latest Economic Tendency Survey.
Over across the fjords in neighbouring Norway, the Norwegian Krone suffered the same lackluster week as its big brother. This week does not see any important data being released apart from the Unemployment Rate, which is out on Friday. It is expected to have changed ever so slightly, coming down from 4.2% to 4.1%, which may benefit the incumbent government seeking re-election later in the year.

Have a great week.

Synergy Team

Europe takes centre stage

Good Morning, England returned to two of its favourite occupations last week, shopping and socialising over a drink, as lockdown measures were eased, like some places in Europe.

Despite the miserable weather, crowds were seen spending their savings and, in doing so, giving a much-needed boost to the economy.

With COVID-19 cases decreasing in the UK, overseas investors were encouraged to buy sterling towards the end of the week, and it has indeed opened stronger this morning at $1.3850, nearly a two-cent increase over the week. Robust US data on employment and retail sales also helped sterling as it weakened the dollar. The pound also fared well against the euro, despite a midweek dip, it gained half a euro cent over the week.

After a week dominated by US data and the Federal Reserve’s policy, we pause for breath this week as the US central bank goes into a speech blackout ahead of its next meeting on 28th April. Our focus now turns to Europe and the monthly meeting of the European Central Bank (ECB). The ECB has been supporting the European economies for over a year but now faces the fresh problem of keeping yields low as US yields rise. If interest rates rise on longer-dated maturities, this could cause issues for southern European countries with the twin problems of an increasing debt burden and another summer without tourists. Domestically we will be watching for further political developments over former Prime Minister David Cameron’s lobbying. We have plenty of domestic data to study this week, including the inflation numbers for February, published on Wednesday, and unemployment data on Tuesday.

UK

Sterling rode a roller coaster last week against the euro, as traders started to take a more optimistic view of the single currency. The fresh buying had the effect of pushing sterling just below €1.1500 at one point before it recovered to €1.1580 where it has opened this morning. Sterling was also hit by vaccine concerns and the resignation of the Bank of England’s Chief Economist, Andy Haldane, who was widely regarded as hawkish on policy. Some investors took his resignation as a sign of disagreement in the Bank of England over letting sterling drift as a post-Brexit policy to help exporters. A busy week ahead on data releases starts tomorrow with the February Unemployment numbers. The latest Consumer Price Index (CPI) is released on Wednesday, which should bounce from its low February level. On Friday, March Retail Sales are published along with flash the April Purchasing Manager Indexes (PMIs) for manufacturing. These are expected to be strong as companies restock ahead of further reopening. We will also be listening for any hints on policy when Bank of England Governor, Andrew Bailey, speaks on Wednesday and from his cohort Dave Ramsden.

Euro

Last week, the euro rallied against the dollar and has opened this morning at €1.1950. The overriding pessimism receded, and traders in the derivative markets adjusted their positions, strengthening the single currency, ahead of the ECB meeting on Thursday. With extended lockdowns still affecting much of the continent, they are likely to maintain an accommodative stance on their emergency bond purchase scheme, capping any rise in interest rates, which is in sharp contrast to the US, where the Federal Reserve is apparently happy to let yields rise. Also, of concern to the ECB will be continuing slow progress of the €750bln EU recovery fund, which is still held up in the German courts. Apart from the ECB meeting and press conference on Thursday, there is not much on the data docket apart from April’s Consumer Confidence on the same day and Markit’s early snapshot of April’s PMIs on Friday.

US

The direction of the dollar was again set mainly by the movement of US Treasury yields last week, which had marched up the hill then promptly turned around and eased back down. The move back down caught many investors and traders off guard, especially after such strong employment and retail sales data had been released. There was no clear catalyst for the price action, and this will keep traders on their toes in the week ahead, as will the ongoing geopolitical tensions, especially those with Russia over Ukraine. A tranquil week looks in prospect in the US with the Federal Reserve on speech blackout until its next meeting on 28th April. The only significant data to look forward to will be the weekly employment data on Thursday and, in common with the rest of the world, the first look at April’s PMI data.

Scandi

The Swedish krona made a big comeback last week, strengthening considerably against most G10 currencies. The main catalyst behind this was the better than expected CPI figures coming in at 1.7%. In other words, not far off from the Riksbank target and primary goal of 2%. Furthermore, what assisted the Swedish krona was the lack of other macro data releases and comments from the Riksbank (yes, sometimes no news, is good news). This week sees no important data releases, and we will monitor the key resistance levels closely along with any updated technical analysis studies.

EURNOK is hovering above a key resistance and psychological level of 10.0000. Otherwise, the Norwegian krone had a quiet week finishing stronger than it started. This week sees no important data releases from Norway either, which means we turn our attention to the EUR, the number of vaccinations, and any indication that this summer will see holiday travel resume remembering that the oil price heavily influences the Norwegian krone.

Have a great week!

Synergy Exchange Team

Sterling get a trim ahead of the population

Good Morning, The pound suffered from an almost perfect storm last week and gave up much of its recently hard-won gains to finish the week at nearly two and a half euro cents lower than it started. The worries over the danger to health from the Astra Zeneca vaccine came to the fore almost simultaneously with Europe showing a more coordinated approach to vaccination.

The growing unrest in Northern Ireland and worries over the Union’s future, coupled with the SNP looking likely to secure a healthy majority in the upcoming elections was also unsettling for the markets. Sterling also had the largest speculative long positions (according to the Commodity Futures Trading Commission), which made it most vulnerable to these changes in sentiment.

The week ahead sees the financial markets return to work, creating more liquidity than we have been accustomed to recently. With the next stage on the roadmap reached, with non-essential shops reopening today, the UK is slowly returning to normal. However, investors will continue watching nervously for any upswing in the daily COVID-19 hospitalisation rates for a few weeks to come. There is a shortage of data due for release in the UK; instead, after last week’s reaction to the potential political instability in the Union, overseas investors will be keeping a nervous eye on events not only in London but also in Belfast and Edinburgh.

UK

The pound came under consistent selling pressure last week, for the first time this year as investors revaluated the political risk of the Union breaking up. The move downward against the euro was exaggerated by the previously overbought level of sterling and triggered by doubts over the Astra Zeneca vaccine’s risks. It is still under some pressure this morning and has opened at just above €1.1500. The UK regulator has pointed out that the benefits of the vaccine far outweigh the risks, and the UK remains on track to have the majority of the population vaccinated by July. Having reached the technical points that seemed to have been driving a lot of the price action, we expect a bounce-back towards its previous levels in the next few days. On the data front, there is a little to excite, apart from the British Retail Consortium’s take on Retail sales released this evening and February’s GDP and Industrial Production numbers on Tuesday. As the Brexit induced disruptions of January are dissipating, analysts are looking for a modest improvement in the numbers.

Euro

The euro had a good week last week, gathering strength against both sterling and the dollar as investors saw that at last, the vaccination programme was starting to work in Germany and France. Also helping the euro was the hint from Robert Holzmann, Governor of Austria’s Central Bank, that the ECB may start to taper their bond purchases sooner rather than later, which would be a significant divergence from the stance the US is taking. However, with the €750bln recovery fund still facing legal challenges, it is hard to see how this could happen. The euro continues to be vulnerable in the week ahead to the increasing tensions on its Eastern borders between Russia and Ukraine and has opened below $1.1900 against the dollar. On the data docket, the EU will publish its February Retail Sales this morning, while Germany will release the April ZEW Economic Sentiment Survey tomorrow. On Wednesday, we have Eurozone February Industrial Production, while Germany will release its March inflation figures, and the week closes with Eurozone Consumer Price Indexes.

US

With employment looking fair and the economy reopening rapidly, fears of inflation are growing in America. As would be expected, interest rates are starting to rise, and these moves upward could be compounded as the US issues more debt via an auction this afternoon. The importance of rising interest rates is that they will pull the dollar higher as investors seek the best return for their money. So far, the Federal Reserve has stuck firmly to the script of not changing policy till full employment is achieved. The Federal Reserve has another opportunity on Wednesday to reiterate their commitment when several members, including the Chairman, give their last speeches before entering a two-week purdah (a period of silence that politicians have to observe before an official announcement) ahead of the next Federal Open Market Committee (FOMC) meeting on April 28th. It is unlikely that they will change the script despite what are expected to be strong economic data releases in the week ahead. Apart from listening to Jerome Powell’s speech, we will be watching March’s Consumer Price Index on Tuesday. A busy Thursday is in prospect with Retail Sales, Industrial Production and Jobless numbers all released.

Scandi

The Swedish krona had a nice comeback last week, strengthening more than 1.2% against the euro and 3.5% against sterling. On Wednesday this week, we will get the latest CPI (inflation) reading. It is expected to come in at 1.6% on a year-on-year basis, an increase of 0.2% from last year. This is the only set of important macro data to be released this week.

The Norwegian krone had a worse week, weakening against all G10 currencies and is once again trading at parity against its big brother. Prime Minister Solberg was fined NOK20,000 for breaking her COVID-19 restrictions, implying a guilty verdict, with only five months to go until the General Election. The centre-left opposition is heavily tipped to regain power from Solberg, who has run the country since 2013. This week we will get the GDP figure expected to have contracted 0.4% on a Month-on-Month basis.

In Denmark, a study in conjunction with London’s Imperial College last week concluded that the richest 1% benefit most from ultra-low rates. Despite this, economists at Danske Bank said that they expect the Denmark’s National bank to lower the interest rate further to negative 0.6%, from the current negative 0.5% level within the next three months to defend the peg against the EUR and to make sure that the Danish krone does not strengthen too much.

Dollar dominates all

Good Morning, Dollar dominates all

In the run up to Easter, the currency markets remained dominated by the familiar themes of vaccinations and infections, with a strong link between the vaccination programme’s speed and the strength of the currency. As has been the case for the last few weeks, sterling has continued to perform strongly against the euro as Europe’s vaccination progress is still encountering problems. The euro is also coming under pressure from internal political upheaval and an increasingly belligerent Russia on its eastern doorstep as it continues to vacillate over the €750bln fund that it agreed last year with the German Constitutional Court now questioning its validity. Meanwhile, President Biden has unveiled a $3tln package to rebuild America’s infrastructure, and although it is unlikely to pass through the House without change, it’s symptomatic of the divergence between the economies.

The Non-Farm payroll data released last Friday was much better than expected with just under a million jobs created. We have another holiday-shortened week ahead of us and we are unlikely to see the narrative changing too radically over the next few days. The movement of the dollar is likely to continue to dominate the markets and again we will be watching the US Treasury market closely to see whether yields continue to edge higher, especially this coming Friday after the US Producer Price Index is released. With Christine Lagarde telling investors that the European Bond market will stay under the ECB’s control, the yield differential between Europe and its key trading partners is likely to widen, adding yet more pressure to that already weighing on the euro.

UK

Sterling continued to edge gradually higher against the euro last week and has opened at just below €1.1800 this morning, having had its best quarter against the single currency since 2015. The first easing of the lockdown restrictions and the UK’s tentative steps to recovery are in sharp contrast to further restrictions being imposed in France. For some time, sterling has benefited from a vaccine dividend and looks set to continue to do so. The pound has broken up through some key technical resistance against the euro and some investors are looking for sterling to move up towards the €1.20 level over the next few months. Whilst the pound is vulnerable to the resurgent dollar, it is trading relatively strongly to the rest of the G10 currencies and has opened above $1.3900 this morning. With little on the data horizon apart from Construction PMIs on Thursday, a relatively quiet week is in prospect.

Euro

The euro looks set to remain in the doldrums as its vaccination programme continues to lag both the US and the UK and its political problems mount. With the US looking at another fiscal stimulus package, Europe’s €750m response is still not implemented and it faces another challenge by the courts shortly. With little on the data front this week it’s hard to see the negative narrative changing. Its problems will be brought into focus when unemployment for the Eurozone is released on Tuesday. The only other noteworthy data sets are the continent-wide Purchasing Manager’s Indexes released on Wednesday. Apart from that, the minutes from the last ECB meeting are released on Thursday which we will study for hints on how widespread the support for the recent expansion Pandemic Emergency Purchase Programme (PEPP) has been.

US

After the non-farm payroll data reported that nearly one million people found employment in the last month the strength of the US recovery is gaining pace. If this continues then all those that lost jobs during the pandemic will be reemployed within a year. The implementation of President Biden’s “Build Back Better” recovery plan will help this recovery, and the challenge now for him is to see how much of his plan he can get approved. The significant events in the week ahead will be the release of the Federal Open Market Committee minutes from its March meeting, which should reinforce the Fed’s dovish tone and its willingness to leave the US Treasury market to its own devices. The Chairman of the Federal Reserve, Jerome Powell, has an opportunity on Thursday to further express his views when he addresses the IMF along with several other speakers from the Fed. However, his commitment to full employment is unlikely to waiver. On the data front, the weekly employment data is released on Thursday, which we will be watching for confirmation of the recent jobless trend. On Friday, analysts and traders will be studying the Producer Price index for March for inflationary trends, any sign of which will lead to a further rise in yields and the dollar.

Scandi

The Swedish krona started the month of April by weakening during what was a half trading day with thin liquidity as the nation prepared for Easter. April has a mixed track record, but Q2 is historically speaking a Swedish krona positive quarter. Vaccinations remain sluggish and it appears as if the roll-out has been somewhat halted as the Swedish government is no longer offering the Astra Zeneca jab to the under 60’s. Other things to pay attention to this quarter will be the inflation rate together with the various manufacturing and industrial production figures which will serve as an indicator of how well Sweden’s economy is adapting to a new, hopefully re-opened world. This week kicks off with the Swedbank PMI Services data out today, the Industrial Orders figures released on Thursday and the GDP Indicator and Budget Balance out on Friday.
The Norwegian krone starts trading today for the first time this month as Thursday last week was a Public Holiday. It strengthened throughout March and was briefly under the psychologically important 10.0000 level before month end. This week carries a lot of important data, including the DNB PMI Manufacturing data out today, the Industrial Orders for February on Thursday and the Inflation Figures out on Friday. The latter are expected to sit right above the 3% mark which many market commentators suggest will spur further rumours of a rate-hike by Norges Bank Governor Olsen even before the summer. Should this materialise, Norway would be the first G10 country to raise interest rates since the Covid19 crises began.

Support and Resistance

GBP/USD
Support 1.3738               Resistance 1.4039

EUR/USD 
Support 1.1679               Resistance 1.1925

GBP/EUR

Support 1.1687               Resistance 1.1855
Have a great week!

Synergy Exchange

Spring storms ahead for the euro?

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!

Battle of the bonds

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!

America Springs Forward

Good Morning; as was widely predicted, the currency markets were dominated by the US bond market’s gyrations last week as the dollar rose and fell in unison with yields.

The renewed upward pressure on yields came about after President Biden finally signed the $1.9trl stimulus bill on Thursday, paving the way for each household to receive cheques for $1400.

The president also announced that he will order all states to make COVID-19 vaccinations available to all adults by May 1st with the aim that Americans will be able to celebrate Independence Day on 4th July with some semblance of normality. These moves will massively boost the economy and have heightened fears of inflation in the US, which would herald a quicker and steeper rise in interest rates than previously anticipated.

The key events in the week ahead are the US Federal Reserve’s meeting on Wednesday and the Bank of England’s on Thursday, after which we will be able to compare their actions with the European Central Bank. The ECB signalled last week that it wishes to carry on with its quantitative easing programme, as expected, and announced that it would step up its bond-buying programme if needed to keep a lid on yields. Their actions aim to stimulate the economy by flooding it with cash and can be partly explained by the continuation of extensive lockdowns in parts of Europe. The ECB’s moves are in complete contrast to the Federal Reserve who are happy to see yields rise as their main concern is still an unemployment level which is still nearly 10 million higher than at the start of the pandemic. Currently, the UK and the pound sit somewhere in the middle, with the successful vaccine roll out dominating traders’ thoughts, and it is unlikely that the BoE will rock the boat this week.

UK

With children returning to school last week, many parents breathed a sigh of relief, it signalled the start of a return to normality. It is hoped that the COVID-19 caseload continues to decline as it has been doing, and the rest of the population can successfully follow the roadmap back to normality that Boris Johnson has laid out. The pound is still benefitting from the vaccine’s rapid rollout and has gained nearly a cent against the dollar in the last week to open at $1.3920. The vaccine dividend is seen as so powerful by investors that, at least for the time being, the increasing friction with the EU is all but being ignored. One event dominates the week ahead, the Bank of England’s monthly meeting, followed by Andrew Bailey’s press conference, on Thursday. A cautiously upbeat assessment of the economy is expected to be presented alongside no change in policy, neither of which should impact the pound.

Euro

Europe is still battling with rising case numbers and slow vaccine rollouts exacerbated by ongoing doubts about the AstraZeneca vaccine. These worries and the continued intervention to keep bond yields low by the ECB has subdued the euro, and it has opened this morning at €1.1650 against sterling. Yesterday’s regional elections in Germany showed a slump in support for the ruling CDU party as it bore the brunt of the blame for the poor vaccine rollouts. This could be the first signal that Germany and Europe will struggle to find solid leadership in the post-Merkel world and worry investors in the euro. In the short term, the euro’s direction will most likely come from the Central Bank meetings in London and Washington with little on its data docket to detract. Amongst the little data released, the highlight is likely to be the Consumer Price Index on Wednesday and Germany’s Producer Price Index on Friday.

US

With clocks springing forward in the United States over the weekend, we are now one-hour closer, albeit temporarily, until March 28th, when ours also move forward, and the US markets’ impact will be felt earlier in the day. As mentioned previously, the US bond market, and in particular the yield on 10-year bonds has been the driving force behind the dollar. With US yields rising with what appears to be benign neglect by its Central Bank, the opposite is happening in Europe, and the euro continues to suffer, opening this morning at $1.1930. This week’s dominant event is the Federal Open Market Committee meeting on Wednesday when we expect that the Federal Reserve will reiterate its commitment to lower unemployment at all costs. Away from the Fed, US data released over the next few days is expected to be somewhat underwhelming. February retail sales should come in lower after the stimulus-inspired January surge. Also released are the February Industrial Production numbers, which will be most likely distorted by the last of the winter storms.

Scandi

The krona had a volatile week but was essentially traded within an 8 öre range against the euro and sterling. An unfavourable article by an esteemed Bloomberg FX analyst surfaced on Thursday saying that the recent sluggish performance of the krona, despite it being tipped to be the best performing G10 currency 2021, has made some market participants wary and that they are now changing their predictions for the year and instead of turning their eye towards the krone instead. NOK/SEK is now trading above parity which symbolises the spectacular comeback the krone has made in precisely a year. Today we are watching the latest inflation figures from Sweden closely. They are expected to come in unchanged at 1.6% on a year-on-year basis.
In Norway, Norges Bank Governor Olsen is setting the Deposit Rate on Thursday. He is not expected to announce any changes, but as always, the press conference afterwards will be the key for us to watch. The krone has a lot of momentum and wind in its sails at the moment, which means that any sign of more positivity can further its gains against most currencies. We will therefore monitor the NOK/SEK cross to see if it heads higher, which would mean that more krona is being sold in favour of krone, causing further krone strength in the short term.