Will dollar continue to dominate?

Last week the markets were dominated by the strength of the US dollar, which took sterling down to nearly three cents off September’s highest level, with the euro also giving up a similar amount.

Dollar dominates

Flows into the dollar were encouraged by the rise in yields on US treasuries and it’s safe-haven appeal as equity markets came under pressure. Much of the move was caused by the quarter-end rebalancing of portfolios, which created more volatility across all asset classes than has been the case recently. The dollar was also pushed higher as currency derivative traders in the options market were caught out by the speed of the moves and had to rapidly hedge positions.

The market enters the fourth quarter of the year in a suitably nervous mood. Many brokers will remember the stormy weather and equally turbulent markets that led to the stock market crash in October 1987. This month tends to be tricky for equities, and with the world’s financial markets intertwined, the currency markets can also be volatile. Policy tightening in the US now looks imminent, possibly as soon as November if this week’s employment data is reasonably strong.

Also of interest will be the outcome of today’s OPEC+ meeting. With global energy supply problems, threatening to push inflation higher, traders will be keeping an eye on whether they turn on the metaphorical taps. Finally, as always, politics will play out in the background both in Germany and closer to home, where an under pressure Conservative Party will hold its annual conference.


Worries early last week over the possibilities of 1970’s stagflation reappearing in the UK combined with quarter-end pressures and pushed sterling sharply lower against the dollar. It recovered some ground during the week but remains at the mercy of King dollar. It fared better against the euro ending the week unchanged. With The Governor of the Bank of England hinting at a rate rise before the end of 2021 and the money markets looking for three rate hikes next year, sterling should continue to hold its ground against the single currency and possibly grind higher. This is not to say that there are no problems on the horizon for sterling. Energy supplies are causing concern due to a lack of storage facilities for natural gas and, almost unbelievably after last weekend’s weather, a lack of wind to turn turbines. The Conservative Party conference takes place this week, and this may present the government an opportunity to put their case over Northern Ireland and trigger article 16. Macroeconomic data is pretty thin on the ground, with only September’s final Composite Purchasing Manager’s Index (PMI) released tomorrow, which may just have fallen back from August’s 54.1. The Bank of England is scheduled to release its Quarterly Report on Friday, and the Bank of England’s hawkish Dave Ramsden speaks on Tuesday.


The euro had a tough week dropping quite sharply against the dollar, which was no surprise considering the European Central Bank’s (ECB) dovish stance over inflation. It was also damaged by the risk-off mood permeating the markets. Whether the ECB is still relaxed over inflationary pressures after September’s headline figure touched 3.4% will become apparent with speeches scheduled this week from Christine Lagarde and Phillip Lane, both of whom are doves. As discussed last week, the horse-trading over who will lead Germany is now in full flow and looks set to continue for several months to come with a Green/Socialist coalition looking the most likely outcome. Tomorrow Eurostat will publish Europe’s Producer Price Index, and Markit will release their Composite PMIs for the Eurozone and the countries that constitute it. On Wednesday, the EU’s Retail Sales are reported; this Thursday, Germany will release their Industrial Production data, and the ECB will publish the minutes of its most recent meeting.


Moves in the stock market and risk sentiment are likely to be the dominating factor at the start of the week as we wait for the latest employment statistics from the US Labor Department on Friday. Despite China remaining shut all week for holidays, the market’s worries over Evergrande are still bubbling under the surface, and equities may be volatile again. With speakers from the Fed starting to sound concerned over inflation, the stage looks set for a start to a tapering of QE next month.

If Friday’s Non-Farm Payroll shows new jobs in the region of 500,000, the market will take this as a virtual confirmation that policy will change sooner rather than later. Although now possibly in overbought territory, the dollar should continue to stay in favour as it continues to benefit from what is called the dollar smile. The smile reflects the dollar’s direction; one side points up when yields rise due to a strong economy, and the other side points up when the markets become risk-averse. By the end of the week, we will know if the dollar is grinning or grimacing.

The data week starts tomorrow when Markit releases its composite PMI and ISM publishes its Services PMI. The first of this week’s three employment reports are published on Wednesday, the ADP white-collar numbers, which will be watched more closely than usual for clues to Friday’s data. These are followed on Thursday with the weekly jobs number and finally, the big one, Friday’s Non-Farm Payroll.


The Swedish Krona had a relatively quiet end to the quarter and remained stuck within the range it has been trading for most of 2021. The fourth quarter has historically been a krona positive month, and most market participants expect this quarter to be no exception. This week we will get the latest Industrial Order and the Household Consumption figures. Both are expected to show an expansion.

In Norway, the krone finished the month on a strong note and is at its highest level against the euro for the year but for a brief spell in April. The ever-increasing demand for oil and general shortages are certainly assisting, but the fact that Norges Bank raised interest rates should not be overlooked. This week we will get the GDP figure on Friday. The economy is expected to have grown 0.9%, an increase of 0.4% compared to last year.

Farewell Mrs Merkel

In the week that Angela Merkel stepped down from her prominent as Chancellor of Germany, there was some significant developments with Central Banks on the markets last week.  

Central Banks dominated the markets last week with what at times appeared an overload of information emanating from every corner of the globe. The most positive action was taken by the Norges Bank, which became the first G10 central bank to increase interest rates since the pandemic began. The Bank of England was a little more intriguing, but there is a clear shift in expectations in the Monetary Policy Committee (MPC), and this has been reflected in the derivative markets who are now signalling a rate rise, albeit by only 0.15%, next February. The US Federal Reserve were not quite so aggressive, but the “dot plot “did show that committee members were bringing forward the timing of the first move upwards of interest rates to 2022 from 2023. As expected, with the European Central Bank still some months away from tightening, the euro retreated against both sterling and the dollar.

Central Banks

The week began with a sharp sell by the world’s stock markets and a subsequent flight to the safe-haven dollar pushing beta currencies such as sterling south. The potential collapse of the Chinese real estate group Evergrande triggered the move. Although the panic had subsided by Tuesday, the spectre of Evergrande defaulting is still haunting the market and may reappear this coming week. The Social Democrats (SPD) scored a narrow win in the German election yesterday but cannot, as yet form a government. The country now faces months of horse-trading before a coalition is agreed upon and formed. With a relatively quiet week in prospect from a macro-economic perspective, the fallout from the election in Germany will be the dominating factor, certainly in the early part of the week.


Sterling had an eventful week, initially falling in reaction to Wall Street’s woes before recovering after the Bank of England sprang a hawkish surprise on the markets. The market, as is the MPC, remain divided over the threat of inflation, but with gas prices rising and supply chain difficulties causing shortages, it is hard not to side with the hawks. Indeed, the Bank of England itself is now forecasting inflation to touch 4% by year-end. The GfK Consumer confidence index, released on Friday, has slumped, and despite the Bank’s hawkishness, sterling is starting to look a little vulnerable. It certainly has some headwinds to negotiate with both furlough ending and the problems over the Irish protocol still rumbling in the background. The coming week hasn’t got the fullest data docket with only second-tier data scheduled apart from second-quarter GDP on Thursday.


Yesterday’s German election failed to deliver a clear winner, and the country now faces a protracted period of negotiation between all the parties. The SPD finished slightly ahead and, at the moment, look favourites to team up with the Greens and one or more of the smaller parties. Angela Merkel will stay as Chancellor until a new government is formed but, in effect, is now a lame-duck politician at a time when Germany and Europe are recovering from the pandemic and need leadership. All markets dislike uncertainty, and it now looks like that is firmly on the cards, possibly for several months. Germany releases its October Gfk Consumer Sentiment data tomorrow, followed by September’s Unemployment level and Consumer Price Index (CPI) on Thursday and Retail Sales on Friday. Usually, these would have the potential to move the euro; however, with the election overhanging the market, any reaction will be limited. The most meaningful data will be the release on Thursday of September’s Eurozone CPI forecast to rise to an annual rate of 3.4%. If it exceeds this level, inflation fears will rear their head, giving the ECB a headache and encourage the hawks in its midst. Before that, Eurozone Consumer Confidence will be reported on Wednesday. The two most influential members of the ECB, Christine Lagarde and Phillip Lane are slated to speak.


The Fed made a decisive move towards tightening its policy last week, and surprisingly, the dollar did not react as strongly as expected. With the yield on US Treasury bonds increasing, the dollar should attract further fans in the week to come, especially if the stock markets start to wobble again. It is quite a busy week for data in the US, with the highlights crammed into next Friday when Gross Domestic Product, Personal Income, and the Feds favourite number, the Core Personal Consumer Expenditure deflator, are all released. Before those, we have Durable Goods to digest this afternoon, Consumer Confidence tomorrow, and on Thursday, the weekly jobless claims total. Possibly as influential for the markets will be the plethora of speakers from the Fed, including Chairman Jerome Powell, who will take to the podium twice. Treasury Secretary Janet Yellen will join him as the US debt ceiling issues continue unresolved. With month and quarter-end on Thursday and October 1st set as the date to approve a stopgap government funding limit, time is rapidly running out, and some nervous times lie ahead.


The Swedish Riksbank kept its main benchmark rate unchanged, and Governor Ingves did not tell the market anything new after its meeting last week. The Swedish krone finished the week stronger but is still within the range it has been trading in throughout 2021. This week the latest Retail Sales figures are released on Tuesday alongside the Trade Balance, and on Wednesday, the Consumer Confidence indicator is published.

Norges Bank Governor Olsen did what the market predicted for a very long time and increased the benchmark rate by 25 basis points to 0.25. He cited the ever-improving economy in Europe’s second-wealthiest country and adjusted the rate path higher. The next hike is expected to come in December, just before Christmas. This week we are anticipating the latest unemployment figure, which is expected to have come down further to 2.5% from 2.7%.

A busy week ahead

Last week, the dollar put in its worst performance this year after the Federal Reserve meeting was perceived as less hawkish than analysts predicted. In actual fact, the Fed did say that “progress” was being made towards normalisation, but in a relatively quiet market, traders ignored the subtleties of language and decided to sell dollars.

The change in the market’s mood coincided with month-end, and institutions reversing their dollar positions to book their profits exaggerated the move down.
Along with most of the G10 currencies, the pound had its best week for some time and managed to gain nearly two cents to finish the month near the top of its trading range. The reluctance of the Fed to start tightening policy became more understandable after the release of second-quarter Gross Domestic Product showed that the economy was not bouncing back quite as strongly as was previously thought. Indeed, the annualised Core Personal Consumption expenditure, one of the Fed’s chosen indicators, was lower than the consensus had forecast, justifying the opinion that inflation is a product of disrupted supply chains and is transitory.

There are two significant events on the currency market’s horizon dominating traders’ thoughts and actions this week the monthly meeting of the Bank of England’s Monetary Policy Committee (MPC) and a complete set of US employment reports, including the all-encompassing Non-Farm Payroll this coming Friday. With the Federal Reserve taking a patient stance over monetary policy, neither dovish nor hawkish, it will be a major surprise if the BoE chooses a different path. The chances are that sterling will ignore the BoE meeting unless there is a marked change in tone and tread water until the release of the Non-Farm payroll data on Friday, which is expected to show strong growth. Away from the macroeconomic data releases, we will be monitoring the Brexit-related problems in Northern Ireland and the spread of Covid in the UK and, as importantly, across Europe and the US.


With the direction of Covid figures still unclear in the UK, it is unlikely that the Bank of England will dramatically change tack on its policies after Thursday’s MPC meeting. Although there are at least two hawks on the committee, judging by recent speeches, it still appears too early in the UK’s economic recovery for a majority of members to push for any substantial change of policy. However, according to press reports over the weekend, they may alter the sequencing of any future tightening. Unless the Bank is openly more dovish than after its last meeting, it is unlikely that sterling will react too dramatically. The Bank of England is also scheduled to unveil its updated quarterly forecasts on Thursday, which are expected to continue cautiously optimistic, but they may contain a sharp upward revision to their inflation forecasts. Ahead of the meeting, Markit will release their Purchasing Managers Index (PMI) for Manufacturing this morning and on Wednesday final composite and Services (PMIs) for July.


A very quiet week and possibly month looks in prospect for the euro, with many traders choosing a sunbed over a dealing desk as August arrives. With the main events occurring away from the continent and little economic data to be published, the euro’s direction will be led by primarily the dollar. Despite a solid performance that saw the single currency gain a cent against the dollar last week, it slipped against sterling after mixed European data with concerns over the effect of the Delta variant remaining to concern investors. As in the rest of the world, the Eurozone will see the release of Markit’s PMI’s starting this morning with Manufacturing followed by the Services and Composite sectors on Wednesday, which also has June’s Retail Sales scheduled for release. There is then a lull till Friday when Germany’s Industrial Output for June is reported


After a series of mixed data reports in the US, traders will be studying this week’s employment details, particularly Friday’s non-farm payroll intently. With the Fed willing to turn a blind eye to inflation and reluctant to pull the trigger on tightening until further progress towards full employment is made, this monthly report has assumed more importance than usual. There are still six million fewer Americans in work than before the pandemic; however, the US has an enviable record in creating jobs. If the actual number comes close to the one million new jobs created figure that some are forecasting, the dollar will appreciate sharply as expectations of an early round of tightening will resurface. The US labor department will also release its weekly jobless total on Thursday, and ADP will publish its predominantly white-collar employment report on Wednesday. As elsewhere, we start the week with Markit and ISM’s Manufacturing PMI’s this afternoon. This data is followed by June’s Factory Orders tomorrow and further PMI’s, including July’s final Composite index the day after. There are several speakers from the Federal Reserve this week, including Richard Clarida on Wednesday and Christopher Waller the following day.


The Swedish krona finished the month unchanged against most G10 currencies. August is historically speaking a krona positive month, and seasonality (with people coming back from their holiday and schools reopening) plays a part too. This week kicks off with the PMI Manufacturing data, Wednesday with the PMI Services data, and on Friday, the Budget Balance is reported.

Meanwhile in Norway, people are preparing for the General Election in September, and politics may start to influence the krone. August has a mixed track record for the krone, whose value very much depends on the consumption of oil and people traveling. This week sees no major data releases but for the PMI Manufacturing data out today.

Lively week before Europe goes on holiday

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

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

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

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


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


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


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


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

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

All eyes on Europe for the week ahead

All eyes focus on Europe this week, as summer holidays begin.

European Markets

The currency markets had a quiet time last week, which is hardly surprising as we approach the peak summer holiday period. Ranges continue to get narrower, and volumes continue to decline. There were, however, some interesting developments, not least from the Bank of England.

After both the Royal Bank of New Zealand and the Bank of Canada took a more hawkish stance, the bank of England somewhat surprisingly also moved further in that direction. The BoE’s Michel Saunders and Sir Dave Ramsden, typically seen as doves, made speeches referencing the need to tighten policy by curtailing asset purchases soon, making the next Bank of England meeting in a little over three weeks more interesting than it may have been expected to be.

However, in his testimonies to Congress, Jerome Powell remained cautious and seemed to have the return to near full employment uppermost in his mind.

With most of the remaining pandemic restrictions in England are lifted today, Prime Minster Boris Johnson, who is isolating, as is Rishi Sunak, urged the public to “please be cautious”. Most supermarkets and London Underground are maintaining a requirement to wear masks that should help ally some fears, but hospitalisations will be closely watched. In common with the UK, Europe faces a rapid growth in case numbers, and the main event this week, the monthly European Central Bank will be held against this backdrop. There is little chance of any policy change, and with the European recovery lagging behind the US and the UK, the euro will remain vulnerable as both the US and the UK start looking to tighten policy.


Over the weekend, investor’s concerns over the relaxation of Covid restrictions and rising cases numbers have grown. These worries are capping sterling at the moment, and it has opened around €1.1650. As in recent weeks, the rate of hospitalisations, more than the case count, will be watched for any marked upswing. However, with a reported 500,000 people “pinged,” some concerns are starting to grow over the impact of this on the economy, and these worries may weigh on sterling in particular against the dollar. Apart from Covid reports, there is little on the data docket to concern sterling this week.

The only significant figures arrive on Friday when the GfK Consumer Confidence survey, Markit’s Purchasing Manager Indexes, and Retail Sales are released. This morning the BoE’s Jonathan Haskel is giving a speech, and on Thursday, Jim Broadbent will follow suit, and after last week’s hawkish statements, we will be listening to see if they continue with the same rhetoric. If they do so, it will signal that the Old Lady has altered course, and that would encourage some buyers back into sterling.


It is the European Central Bank’s (ECB) turn to take centre stage this week, with its monthly meeting taking place on Thursday. With Covid cases on an upward trajectory again in Europe and with much of the continent still lagging behind the US and the UK in vaccination levels, the euro will stay under pressure as its economic recovery starts to look even more fragile. Despite these worries in the background, the ECB is expected to adopt a slightly more hawkish stance. This data flow begins later this morning with European Construction reports and the monthly report from the Deutsche Bundesbank. Then there is a lull till the ECB meeting on Thursday, followed by the customary press conference from Christine Lagarde. On Friday, Markit will release its Purchasing Managers Indexes for the Eurozone and its constituent countries.


For the first time in a few weeks, the Fed will take a step back this week with no speakers scheduled as they enter the blackout period before the next Federal Open Market Committee meeting. With little on the data front to occupy traders, they will continue to digest the overridingly cautious tone that Fed Chairman Jerome Powell took last week over the threat of inflation. Increasingly the markets are split over whether the Fed is being too slow to react or is right to be cautious. Economists fear that if the Fed tightens too quickly, the economy may tip back into recession. Admittedly, there are worrying signs that this may be happening, and yields in the US Bond market, which many currencies traders follow intensely, are starting to reflect this.

The uncertainty surrounding the recovery looks set to continue, but it could be a quiet week as there is little to disturb the summer doldrums that the markets find themselves in. The data week starts with the release of the NAHB Housing Market Index today and tomorrow, June’s Housing Starts and Permits. On Thursday, the weekly Jobless total is released, and we close the week with the Markit Purchasing Manager’s Indexes.


The Swedish krona lost ground last week as the inflation figure came in lower than expected on a Year-On-Year basis. It is trading at the higher end of the narrow range against the euro and sterling, but this is nothing unusual as July is usually a krona negative month. This week is very quiet from a data perspective, with only the Producer Price Index on Thursday carrying any importance.

Some speculation in the financial press about the Norwegian krone and the forthcoming rate hike was the only interesting piece of information last week. This week is looking relatively uneventful with no significant data releases.

Currency markets look to Federal Reserve

Currencies continued to trade in the familiar tight ranges for most of last week as the markets awaited the US Consumer Price Index (CPI) for May, which, when published, reported the highest core inflation figure for 30 years.

Investors remain concerned with the inflationary pressures that appear to be growing as the developed world recovers from the pandemic and how quickly central banks will stifle uptick by tightening policy.

Initially, the dollar rallied before falling back and then rallying again into the close on Friday as the US Bond market belatedly reacted to the CPI data and yields increased. The pound was buffeted by these outside influences and has opened this morning a little easier than last week at $1.4100.

Another potentially busy week lies ahead with key data from the UK and the monthly Federal Reserve Open Market Committee (FOMC) meeting. After last week’s surprisingly high inflation report from the US, pressure has increased on the Federal Reserve to tighten policy. The markets will hang onto every word Jerome Powell says at the press conference following the meeting for any hints to a change in policy. There is an avalanche of reports from the Office for National Statistics (ONS) over the next few days for the pound to digest in the UK. In the background, as so often, there is an ongoing Brexit dispute with the EU rumbling on. The so-called “sausage wars “seem likely to continue into this week as the tricky issues of the Northern Ireland Protocol remained unresolved. Hopefully, the Euro 2020 tournament will be less contentious!


The pound had a relatively quiet week last week but may become more vulnerable this week as the final easing of restrictions on the 21st June looks likely to be delayed and tensions between the EU and the UK show little sign of easing. However, as has often been seen, the EU likes to take negotiations to the last minute. So far, the impact of the dispute over the Northern Ireland Protocol has been muted, with sterling virtually unchanged against the euro in the last week at €1.1650. We have a data-packed week in front of us starting tomorrow morning when the ONS will release Average Earnings and hopefully Employment figures that are continuing to improve. On Wednesday, it’s the UK’s turn for CPI, which is likely to show a rise towards the 2% level whilst not rising as quickly as the US. The week closes out with May’s Retail Sales which several analysts expect to disappoint after April’s sharp rise. We will be listening to Bank of England Governor Andrew Bailey when he speaks tomorrow afternoon for any comments on the morning’s unemployment data.


As expected, at their monthly meeting last week, the European Central Bank played down any chances of tightening policy soon. Whilst not unexpected, the market turned against the euro, and some quite heavy selling occurred, which pushed the single currency to below $1.2100 against the dollar. It remained against sterling, but both currencies remain vulnerable to any breakdown in the ongoing talks over the trade issues surrounding Northern Ireland. An extremely quiet week appears to lay ahead with mainly second-string data on the docket apart from Eurozone Industrial Production this morning, German CPI tomorrow, and lastly, May’s CPI for the Eurozone on Thursday.


The highlight of the week for financial markets, generally not least the currency markets, will be Wednesday’s FOMC meeting. However, with the markets entering summer mode and volatility decreasing, it is unlikely that the Fed will want to rock the boat by discussing tapering; indeed, it is most likely that Jerome Powell will do all he can to avoid the subject at the press conference. Only two reports stand out on the data docket: May’s Retail Sales and Industrial Production, both of which are released tomorrow. The retail sales data may unsettle the markets as they are likely to be distorted by disruptions to the car market caused by the shortage of semiconductors. Away from financial data, President Biden will continue his travels this side of the Atlantic with what should be interesting meetings with President Putin from Russia and his Turkish counterpart President Erdogan.


Even though macro-data came in worse than expected last week, the Swedish krona kept on strengthening confirming what many analysts had written earlier about its seasonal performance. We are now in official krona strong ground that usually lasts until Midsummer and sometimes until the last Riksbank meeting in July which is the last one until the long summer holiday ending in mid-August. This week sees no major data releases which means technical and seasonal traders may outnumber day traders looking for quick profits.

The macro data from Norway also provided some sombre readings last week, in particular the latest CPI figure which was much lower than expected. It prompted the financial press to seriously question whether a rate hike from Norges Bank Governor Olsen will come in September, some going as far as saying that the Norwegian krone now has become a two-way bet. Volatility against most G10 crosses is expected to remain high throughout the week until the Deposit Rate announcement on Thursday. The market expects Governor Olsen to stay put but will closely listen to what he has to say regarding last week’s low inflation figures during the press conference.

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.


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


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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


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