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New beginnings for Sterling

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Good Morning, first and foremost, we would like to wish all our readers a happy, peaceful, and prosperous New Year.

After the most tumultuous year in living memory, the new year starts with two of the big clouds that hung over the markets gone as the US election and Brexit are now both finally resolved. Unfortunately, the news on COVID-19 infections continues to worsen and further lockdowns seem inevitable in the UK and Europe. Hopefully, as the vaccination programme expands, these restrictions will be short-lived, and some semblance of normality will return. As we start the year, the UK, the US, and the EU start on new journeys and how quickly they adapt to the changes will influence their respective currencies as will their recoveries from the pandemic.

Both the UK and the EU start the year as a freshly divorced couple but facing the same challenges. The change appears to have been seamless so far, but it is early days. After the relatively quiet markets of the last two weeks, traders return to their desks today full of vim and vigour for what looks to be an exciting start to the year with plenty of economic data to digest. The key as always will be the employment data out of the US. With the first full set of employment data for several weeks released at the back end of the week, we will see how the economy is faring as the pandemic continues across the States.

UK
After a wild ride for sterling over the last five years the coming year should hopefully be less traumatic. With the last gasp signing of a trade agreement between the UK and the EU, a semblance of normality can now return and without the ‘no-deal’ risk premium hanging over it, sterling should continue to benefit. This week we have a relatively quiet start to the year on the data docket and traders may be more interested in whether tailbacks build-up at Dover as new regulations are implemented. Today, in common with the rest of the world, we have the Markit Purchasing Manager’s Index (PMI) for manufacturing to look forward to and on Thursday Construction PMI’s.

Euro
The euro has started the year trading above the $1.22 level against the dollar, which is more of a reflection of the continuing dollar weakness, rather than euro strength. The economy is still being hit by the second wave of COVID-19 and the restrictions that it necessitates, as a result, at present the eurozone’s growth prospects are not particularly strong. Against sterling, the euro is trading near to €1.1150 as traders eye the head start that the early vaccination programme could give the UK economy. On the data front, we have quite a busy start to the year. Today the Eurozone Manufacturing PMI’s are released, on Tuesday Retail Sales and unemployment for Germany. On Wednesday Services PMI’s are released across Europe. Also released are the German Consumer Price Index (CPI) followed on Thursday by Eurozone Retail Sales and CPI. The week closes out with German Industrial Production.

US
The dollar ended the year broadly unchanged on a trade-weighted basis, but this reflects its strength at the height of the pandemic last spring, more than any renewed buying interest. With a new, probably more predictable, President soon to be inaugurated, the Treasury’s actions will now be more in focus than ever. The appointment of the internationalist, Lael Brainard, as the next US Treasury secretary should lead to a less protectionist US that should see the dollar continue to ease. We have a busy data docket to watch this week kicking off with the Institute for Supply Management (ISM) Manufacturing index on Tuesday. On Wednesday, the Markit PMIs are released as are the last FOMC minutes and the first set of Employment numbers for the month with the ADP white-collar data. These are followed on Thursday by Initial Jobless claims and ISM services data. The week closes out with the often trend-setting all-encompassing Non-Farm payroll data.

Scandi
Even though 2020 was anything but a normal year, the Swedish krona did behave as predicted and in-line with technical as well as seasonal patterns throughout December. The krona ended the year on a high note scoring its best performance and level against the EUR since February 2018 and claimed the title Best Performing G10 currency of 2020. January is historically speaking a month when the krona comes under pressure, and the gains from December are sometimes entirely wiped out. This week kicks off with the Swedbank PMI Manufacturing Survey out on Monday, and the latest figure for the Industrial Orders and Household Consumption is out on Friday. Please bear in mind that Sweden has a Bank Holiday on Tuesday for Epiphany (Three Kings Day).
What a difference a short sleigh ride across the snowy mountains makes. The Norwegian krone claimed the opposite title than the Swedish krona had bestowed upon it and officially became the worst performing G10 currency. Monday starts with the DNB PMI Manufacturing survey and Industrial Production figures are out on Friday. Norway and Demark will remain open on Wednesday.NE

The can is kicked down the road again

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Good morning, Last week volatility increased sharply in sterling related markets as once again Brexit dominated the headlines and airwaves. With this weekend’s talks spilling over into this week, a renewed sense of optimism returned. Sterling has bounced strongly off its lows as a no-deal outcome seemingly has receded slightly.

After a week where a no-deal loomed, we now have another two possible outcomes, either a deal at the death or a possible extension beyond the 31st December. With so many imponderables and personalities at play, the rumour mill will no doubt be working over-time. Sterling will remain highly volatile, and thin markets will heighten it as we enter into the Christmas period.

Away from Brexit, our focus will be on Central banks over the next few days. Last week the ECB increased the length of its monetary accommodation into the first half of 2022. By doing this, they are hoping that their policies can act as a bridge till vaccines have restored some sense of normality to the Eurozone economies. This coming Wednesday, we will get to see how the Federal Reserve is planning to react to the rising tide of both COVID-19 and unemployment in the United States. On Thursday it will be the Bank of England’s last chance to change policy before the year-end.

UK

After the weekend’s talks seemingly ended in a score draw, we enter the last full week of trading still unsure of the trade negotiation outcome. After a weekend where sterling moved by over 1% back to £1.3325 and thin trading in prospect, we again expect to see highly volatile markets. Away from Brexit, we have quite a busy data docket. The latest Unemployment data will be released tomorrow, Inflation figures for November on Wednesday and Retail Sales on Friday. The most important event will be on Thursday when the Bank of England will hold its last regular policy meeting of the year. This meeting falls just a fortnight ahead of the year-end when we could still find the UK ending its transition out of the European Union without a future trade deal.  The BoE is likely to leave both rates and QE (Quantitative Easing policies) as they are this month. Governor Andrew Bailey has hinted at a move to negative interest rates, but this is unlikely. If the BoE decides to move rates into negative territory sterling would decline sharply.

Euro

The euro is of course affected by the Brexit uncertainty every bit as much as sterling and has opened this morning at €1.2125. Over the weekend Germany announced a hard lockdown over the Christmas period and this may cap and advance by the euro. Derivative traders are also taking a negative view of the currency as the premium for puts (the right to sell euros) has been increasing. The derivative moves may be traders buying protection for year-end as demand for dollars increases. Away from waiting on Brexit headlines, we will be watching October Industrial Production today and then the first look at the December PMIs for the Eurozone, on Wednesday. The recent lockdowns have hurt the service sector more than most and analysts aren’t expecting too strong a rebound.

US

After last week’s weaker US payrolls number there does, at last, appear to have been progress with the discussions over a new $916bn stimulus package. Whilst these negotiations drag on there is at least the good news that a vaccination program is starting across the United States. With 2021 rapidly approaching there is potential for disruptions to the market caused by year-end rebalancing. With US stock markets having risen sharply, there could well be a demand for dollars as banks need to balance their books. Away from the repercussions of Brexit, we will be watching out for the Federal Open Market Committee meeting on Wednesday. A dovish message is expected from this meeting but with no great changes to its policy. On the US data docket, we will be keeping an eye on November Industrial Production on Tuesday, Retail Sales on Wednesday and Thursday will see the weekly release of unemployment data.

Scandi

The Swedish Krona had another volatile week against most G10 currencies. This was mainly caused by Riksbank comments about the possibility of negative interest rates in the future should they be deemed needed. It remains the best performing currency of this year within that group, and the macro data from last week was encouraging too. Inflation remains stubbornly low, but the Riksbank does not seem too worried as it tries to put out other more urgent fires. This week is relatively thin from a data perspective with the unemployment rate being the only important set of data out on Thursday. Loyal readers of our report are fully aware that December is normally SEK positive, and data compiled demonstrates that SEK has strengthened on average 1.1% between 11-Dec and 31-Dec since 2009. In other words, we have entered what should be a SEK bullish period.

Over in Norway, it looks as if the Norwegian Krone is going to claim the opposite title and be crowned the worst performing G10 currency of the year. Apart from oil, Norway’s economy is mainly driven by its high-end fishing produce. With lockdowns and restaurant closures, the industry has suffered throughout 2020. Despite that, the market is not looking for the Norges Bank to deliver any surprises on Thursday when the Deposit rate is set. It is expected to stay at 0.00%. We will also closely monitor the unemployment rate, which is out the day after.

ROW

The aussie dollar looks set to continue benefitting from the recent rise in Iron Ore prices as well as the weaker dollar, but like all beta currencies, it may suffer from the fallout from Brexit as well as its ongoing spat with China with the Australian wine industry now targeted. We will be watching its close neighbour, the kiwi when third-quarter growth data is released this week where the consensus is for a strong rebound. Their cousin, the Canadian dollar, should continue to benefit from a global rebound as Oil recovers and their inflation figures are released on Wednesday. The Swiss franc could see some volatility as the ramifications of any new Brexit negotiations are felt. The Swiss National Bank will as always will be watching from the sidelines and will not be afraid to intervene to maintain an orderly market.

A volatile week for sterling?

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Good Morning, after weeks of the markets being dominated by three stories, President Trump, Brexit and COVID-19, it seems like we are at last reaching the end game in two of them.

President Trump has all but conceded defeat to Joe Biden.

The markets are now anticipating what a Biden presidency is going to be like and the Brexit negotiations, famous last words, look like they are in the final furlong. COVID-19, however, is still tearing its way through much of the world with America reaching record hospital admissions; however, on this side of the Atlantic, it is starting to look more containable. The great news in the last week was, of course, the upcoming availability of a vaccine against the virus in the UK. Widespread inoculation will help life return to normal quicker than possibly anticipated and hopefully give us a head start on the road to full economic recovery.
 
Over the weekend, Boris Johnson and Ursula von der Leyen had a one-hour phone conversation which has led to the two negotiating teams returning to the table. It did emerge from the call that the same three issues, fishing rights, a level playing field and dispute resolution are still no closer to being solved. With President Macron facing an election next year, it is no surprise that he is playing tough over fishing, partly as much of the French trawler fleet is in areas where his support is weak. This week we will find out whether it’s all just bluff and bluster from politicians on both sides of the Channel. The euro has been enjoying a stellar run against the dollar as sterling has, but if there is a genuine breakdown in talks, both currencies will drop sharply. Away from Brexit, we will be watching out to see if the dollar can recover from its recent weakness and what the ECB are up to on a European super Thursday.

GBP

Over the last week, sterling appreciated against the dollar due mainly to dollar weakness but also on optimism of a Brexit trade deal. It gained almost two cents at one point touching the high of $1.3515, which was a level we last saw after December 2019’s election. A recent market survey reported that most participants were expecting a Brexit trade deal in one form or another. Still, it only managed a modest move against the euro over the week and has opened weaker at €1.1060 this morning. With the trade negotiations on a knife-edge, we are expecting an extremely volatile week for sterling as we enter what really is now the end game. With institutions seemingly committed to a positive outcome, we think the risks to sterling are more to the downside as either a thin deal or no deal now looks most likely. It’s a quiet week on the data docket in the UK this week with just October’s Industrial and Manufacturing figures and GDP on Thursday for us to digest.

Euro

Looking away from Brexit this week the euro will be dominated by “Super Thursday” when not only is there an ECB meeting but also an EU leaders’ summit. Alongside Brexit, another problem the leaders face is getting the Recovery Fund approved. Last week, the markets chose to ignore Poland and Hungary’s protestations over the fund taking the view that, as is often the case, Europe will find a fudge. The question remains whether the leaders can find a solution as well as whether they can agree on any possible Brexit trade deal. We will also be watching for further stimulus from the European Central Bank and listening closely as no doubt President Lagarde tries to talk the euro down on Thursday. With suggestions that China and Switzerland are needing to rebalance their reserves by buying euros, this may be a thankless task.  On a quiet data docket, we have the results of the ZEW sentiment surveys on Tuesday to look forward to as well as the Eurozone Gross Domestic Product (GDP) figures, and we will be studying November’s German Consumer Prices on Friday.

US

The dollar slumped to its lowest level against the euro for nearly three years last week, as the single currency traded comfortably around the $1.2150 level. Non-Farm payroll data last Friday was disappointing and with over one million cases of COVID-19 over the last five days, the US economy will continue stuttering causing the dollar to slip. With the election receding into the memory, attention is turning towards the chances of agreement over the much-needed stimulus. With a lame-duck administration until the swearing-in of the new President next January hopefully, there will be a chance of some political compromise. There is very little data out this week for the market to fret over, apart from November’s inflation numbers and Initial Jobless claims on Thursday. Also, on Thursday, we will be watching to see if the Food and Drug Administration approves the Pfizer/BioNTech vaccine when it meets.

Scandi

What should have been the start of what is usually the strongest period for SEK has been quite the opposite. The Swedish currency remains under pressure against the EUR with stricter COVID-19 restrictions, internal fighting within the fragile Social-Left-Green-party coalition and the world’s oldest central bank taking action, which surprised all market participants just before month-end. Albeit December has just begun, 2020 has once more proven to be the year of surprises, and we will closely monitor all macro developments. This week we will pay extra attention to the Budget Balance, which is out alongside the latest Industrial Orders figures and Swedish Housing price data. The important CPI (inflation) figure is out on Thursday, together with the latest Household Consumption data.
Last week’s biggest headline from Norway was the resignation of the Deputy Governor of Norges Bank, due to a potential conflict of interest which arose partly because of his marriage to a Chinese citizen for which he was denied security clearance to continue his job. Nicolaisen had also overseen overseeing the world largest sovereign wealth fund, and it is still unclear who will replace him. What long term impact his departure will have on NOK remains to be seen, but should it be anything like the initial reaction, then the NOK may weaken further. This week we will get the GDP figure on Wednesday and the CPI on Thursday all expected to remain static on a month-on-month basis.

ROW

With a European summit on the horizon and continued dollar weakness, we could see some upward movement in the Swiss franc this week as traders seek a safe haven in Europe. On the other side of the Atlantic, the Canadian dollar looks set to benefit from strong employment numbers as well as positivity towards Oil after the recent OPEC+ agreement. Its cousin in Australia underwhelmed last week and was amongst the worst performing currencies in the G10 which Philip Lowes speech this week is unlikely to change. Finally, the Japanese yen has been relatively quiet recently but, with risk appetite continuing to grow, it could start appreciating as funds flow from the US dollar.

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.

Sterling just sitting on the fence

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Good Morning, after a week dominated by rumour and counter rumour, sterling ended up slightly stronger as investors became optimistic that at least both sides of The Channel were back talking.

Some in the market took the view that the politicking early in the week was at best “a third-rate, will-they-won’t-they melodrama, in which a knowing audience in Brussels and London opened and ahead, safe in the knowledge that the two sides would ultimately return to the table — if only to avoid taking the blame for failure”.

Sterling is now hovering just above the middle of its trading range reflecting the consensus that there is a slightly better than 50:50 chance of both sides breaking the deadlock. Apart from Brexit, the American election, in just over a week’s time, looms large over the world’s financial markets and despite President Trump’s better showing in last week’s debate, commentators are wondering if it is too little too late and continue to predict a blue wave. If a blue wave does indeed sweep Biden to power and give him control of both houses, the dollar could fall further in the aftermath of the election as he is broadly perceived as anti-business.

The week ahead is again going to dominated by the US elections and currencies will be buffeted by the changes in risk sentiment caused by it. Brexit is still uppermost in the thoughts of both sterling and euro traders, and we will spend the week yet again, watching the headlines. As we are becoming sadly accustomed to COVID-19 and its destructive grasp on the world economies, this is a resurgent danger that the markets must watch. With the ECB setting the pace this week, Central Banks are sure to continue to offer unlimited help and resource in addition to most governments continuing to do the same to support businesses, but increasingly the question will be who and how will it all be paid for?

UK
As the UK government celebrated the signing of an all-encompassing trade deal with Japan (having settled the Stilton war) the larger matter of a trade agreement with Europe appears to be edging forward after the resuming of talks last Thursday. There is now a cautious optimism over these negotiations after Michel Barnier extended talks into this week and President Macron appears to be softening his stance regarding fishing. However, the continuation of the talks is fully priced into sterling as are the chances of a satisfactory outcome, consequently the danger now lies in an “unstaged” breakdown in the talks which would see sterling fall sharply. We will be watching domestic developments particularly on the containment of COVID-19. With next to nothing on the data front this week, sterling is again most likely to be driven by the dollar switches in risk sentiment.

Euro
The euro, assuming an absence of Brexit news, will be overshadowed by COVID-19 and thoughts about this Thursday’s meeting of the ECB. With last week’s release of disappointing Purchasing Managers Indices, ECB President Christine Lagarde is expected to deliver a dovish message hinting at further quantitative easing in December. The euro may also gyrate more this week against the dollar as it is the largest and most liquid currency pair in the world of FX. Consequently, it is also the most sensitive to changes in risk assessments over the upcoming US election. On the data front, we will be watching for the release of further information regarding confidence starting with the German ifo data today. This data is followed by European consumer confidence and September’s German Consumer Price Index (CPI) on Thursday. The week closes with European CPI and third-quarter GDP.

US
The dollar spent last week reacting to rumours over the likelihood of a stimulus bill being passed, which at the end of the week didn’t seem any closer than at the start. The longer this stimulus is withheld, the more the damage to the economy will continue, and with COVID-19 surging towards 85,000 daily cases, the need for economic help is growing. With just over a week until the polls in the US election, the market has been broadly selling dollars in expectation of a win for Joe Biden. Despite over 50 million votes already being cast, there does remain a ray of hope, amongst his supporters, that Donald Trump can triumph in a repeat of the last election when he trailed Hilary Clinton in the polls. The Trump team will be partly pinning its hopes on this Thursday’s release of third-quarter GDP which should see a huge recovery and embolden his claims of his economic prowess at the White House.

Scandi
The krona had a very quiet week despite the political uncertainty hanging over it. The pound strengthened modestly against the krona, mainly on the back of the restart in Brexit talks more than anything impacting the Swedish currency. With schools closed for half-term this week, most political commentators do not believe any major domestic breakthroughs will be made and that the uncertainty will spill over into November. This week we will be keeping a close eye on the trade balance and the latest household lending figures out on Tuesday. An important economic tendency survey is released on Wednesday and the latest retail sales figures as well. The latter is expected to have remained stagnant on a month-by-month basis.
Over in Norway, a growing number of COVID-19 cases has seen the government impose tougher restrictions. Just like its big brother, the krone had a very quiet week and was range-bound. The most important data release this week in Norway will be Friday’s unemployment rate which is expected to have decreased to 3.5% from 3.7% on a month-by-month basis.

ROW
The Japanese yen will remain the main beneficiary of any fallout from the US election especially if it looks like it is going to be a contested result. The new Japanese Prime Minister, Yoshihide Suga, is due to address parliament today but it is unlikely he will announce anything to move the markets. Elsewhere, with little out on the data front apart from third-quarter inflation figures on Wednesday the Australian dollar will remain vulnerable to any further protectionist moves by Beijing. Apart from the policy meeting of the Bank of Canada on Wednesday, the week looks quiet for the loonie and its movement will most likely be dominated by the likely outcome of the US election.

Question
Why do the clocks change?
The Germans were the first to implement the idea in 1916 during the First World War, in the hope, it would improve productivity in their war economy by saving coal. Britain and most of its allies soon adopted the concept. Once the war was over, most countries abandoned Daylight Saving Time (DST), except for Canada, the UK, France, Ireland, and the United States. The rationale is to put clocks back every year heading into winter to allow people an extra hour of daylight after work. This was the original idea first originated by George Hudson, an entomologist and astronomer, who invented modern DST and proposed it in 1895. He was a British-born New Zealander who wanted to allow himself an extra hour of sunlight in the evening to collect insects!

Decision day for UK and US

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Good Morning, President Trump dominated the headlines and the market’s attention last week, as he returned to the White House much earlier than anticipated full of vim and vigour. The markets responded positively, and risk appetite returned which helped beta currencies such as sterling, which ended slightly better on the week at $1.2975.

There is still a slight question mark about his health and whether he is fully recovered, so currencies will stay jittery for the foreseeable future. Away from the health of the president and American politicking over fiscal stimulus, the overriding driver of the markets for sterling is Brexit. With the self-imposed deadline of the 15th October for agreement over a trade deal just a few days away now, we are expecting the markets to be extremely sensitive to Brexit headlines.

Looking forward, the focus this week will be on the EU summit on Thursday and Friday, which coincides with Boris Johnson’s deadline. At the time of writing, it seems extremely unlikely that an agreement will be reached by then and with Michel Barnier saying October 31st  is the “realistic deadline” an extension of the talks is to be expected, even if it is just to discuss how best to cope with a no-deal. We will also be watching how the second wave of COVID-19, both in the UK and Europe, develops. So far, the spread has been ignored, but the economic impact is still real. The harm already inflicted was reflected in last week’s economic data which was worse than anticipated both in the UK and America and sadly local lockdowns look more and more likely to increase as will the damage they inflict.

Sterling
As mentioned, the week ahead is a big week ahead for sterling as we enter the end game on the Brexit negotiations, with the most likely outcome an agreement to continue negotiations into November. Sterling is sitting just on the key technical level of $1.3032* which many feel is the middle of its trading range, reflecting a 50/50 chance of a no-deal. If there are any truly positive signs of a breakthrough, the pound would break this level and rapidly appreciate. The pound has been holding steady around the €1.1000 level, but this week we expect to see a little more movement. With economies both in the UK and Europe set to suffer more from COVID-19 induced restrictions, the pressure is firmly on both sides to agree to a compromise and increasingly the market senses that a resolution will only come from direct intervention from the key players involved, namely Angela Merkel, Emmanuel Macron and Boris Johnson. The focus on the data front will be the release of unemployment data on Thursday, which is expected to be gloomy as we approach the end of the main furlough scheme. The only scheduled noteworthy speech is from BoE Governor Andrew Bailey who is speaking late this afternoon.
*50-day moving average

EURO
The euro enjoyed a relatively stable week against both sterling and the dollar, despite the verbal interventions of the ECB to try and talk the single currency down. We expect to see more jawboning from ECB officials especially when the currency approaches $1.2000 which appears to be the level that concerns the central bank. In the coming week, the main story will be Brexit and naturally what is good for sterling will be good for the euro as both sides equally need a deal. Christine Lagarde is scheduled to speak late this morning and again on Wednesday but apart from that, it’s a quiet week until the EU summit on Thursday and Friday. The only major data of note is from Germany where the Consumer Price Index is released Tuesday as is the latest ZEW economic survey.

US
Today is Columbus Day, a national holiday in the US, so we are expecting a very quiet start to the week. Over the weekend Donald Trump made a public appearance at the White House and was declared COVID-19 negative. Despite the clean bill of health surprisingly the second presidential TV debate has been cancelled. As the election looms ever closer, politics and Donald Trump’s health will naturally continue to dominate the headlines. With the opinion polls now suggesting a clear win for Joe Biden, the risk of the result being contested is receding which will support riskier currencies and suppress the dollar. On the data docket this week we have inflation figures released on Tuesday, jobless claims on Thursday and retail sales on Friday.

Scandi
Towards the end of last week, we saw some hefty movements in the krona caused by the global switch in risk assessment. Speculation has increased in Sweden about the Vänster Partiet (the left-wing coalition partner of the ruling Social Demokraterna party) joining the opposition parties in a vote of no confidence in the government. Should this happen, the fragile coalition would falter, and new elections would have to be held. This unstable political situation will most likely dominate movements in the krona from a macro-perspective the coming days. We will also be keeping a close eye on the CPI release on Tuesday and the unemployment rate out on Thursday.

The Norwegian krone has recouped some lost ground in October and is back trading at levels last seen in mid-September against major crosses. With no major data releases out this week, we will be monitoring the oil price as it has a direct effect on the oil-exporting country’s currency.
We rarely mention the Danish krone since it is pegged against the euro, making it easier to just follow the euro’s movements, however, it is worth noting that the EURDKK is currently trading at its lowest level since 2018, even though EURUSD is currently near its highest level since 2018.

ROW
In common with other G10 currencies, the Japanese yen remains beholden to moves by the US dollar and as a safe haven currency, it will benefit from any political fallout in America during the run-up to the election. The aussie dollar will be dominated by two events in the week ahead, firstly the speech from RBA Governor Philip Lowe on Wednesday ahead of the employment data which is due on Thursday. With the RBA stating the importance of jobs to its policy stance, it is unlikely that any surprises are in store. The kiwi will remain dominated by domestic politics with the general election on the 17th October which the incumbent is expected to win. As always, the Canadian dollar will be following its southern big brother but may gain some strength if oil stays relatively strong.

Question
What is a moving average?
A moving average is a popular technical analysis tool. Moving averages are usually calculated to identify the trend direction of a currency or to determine its support and resistance levels. It is a trend-following indicator because it is based on past prices. The longer the time period for the moving average, the greater the lag and the greater the influence. So, a 200-day moving average will have a much greater degree of lag than a 20-day MA because it contains prices for the past 200 days. The 50-day and 200-day moving average for currencies are widely followed by investors and traders and are amongst the most important trading signals. As they are so closely followed, they can become self-fulfilling prophecies and when a currency breaks through a moving average many investors will follow the move.