Forecast

Pound Plummets Amid BoE Rate Cut and Political Unrest: What’s Next for the UK Economy?

Posted on by Will R

Last week was a turbulent time for the British pound as it took a significant plunge, largely triggered by the Bank of England’s (BoE) recent interest rate cut. The BoE’s move not only shook the markets but also hinted at the possibility of two more rate cuts before the year ends, causing further concerns among investors. This monetary policy shift was expected to provide a boost to the UK economy, but the recent riots across the country quickly disrupted the narrative that political stability had returned following Labour’s election victory.

This week, the UK economic release schedule is packed, with key data on employment, wages, inflation, and GDP set to be unveiled. These figures will be closely scrutinized by investors and analysts alike, as they will provide critical insights into the state of the UK economy and its future direction. The outcome of these reports could either exacerbate or ease the pound’s current volatility, depending on whether the data aligns with the BoE’s recent actions or signals further economic challenges.

The impact of these developments is not confined to the UK alone. Across Europe, economic announcements are also on the horizon, particularly with a focus on German inflation figures. There’s a 66% probability of a rate cut on September 12th, and any further weakening in German inflation could increase the likelihood of this move. If this occurs, it would mark the first rate cut in Europe since the Covid-19 pandemic, following in the footsteps of the UK’s recent decision.

The GBP/USD exchange rate saw a dramatic drop to a one-month low last week, driven by a global market selloff, civil unrest in the UK, and rising bets on additional BoE interest rate cuts. While the pound managed to claw back some of its losses, the outlook for the currency remains uncertain. This week’s economic data will play a crucial role in determining the future movement of the GBP/USD pair and whether the pound can stabilize or continue its downward trend.

As the week unfolds, all eyes will be on the UK’s economic data releases and their potential impact on the BoE’s next moves. With the ongoing political unrest and economic uncertainty, the pound’s journey through the coming weeks will be anything but smooth. Investors should brace for potential volatility and stay informed as the situation develops.

The British Pound Continues to Falter Amid Interest Rate Cuts

Posted on by Will R

The British Pound has been struggling lately, following the Bank of England’s (BoE) decision to cut its interest rates by 25 basis points last week. This move, aimed at stimulating the UK economy, has had significant repercussions on the currency market. BoE Governor Andrew Bailey emphasized that future rate decisions will be made on a meeting-by-meeting basis. However, market participants are anticipating more rate cuts in September, with a nearly 55% probability of a reduction at the next meeting.

The Euro Benefits from Strong German Economic Data

In contrast, the Euro has seen a boost, thanks to recent positive economic data from Germany. Despite a generally quiet economic calendar for the trading week, European Retail Sales are expected to be a crucial indicator for the Eurozone’s single currency. If the retail sector shows improvement, it could provide further support for the Euro against other currencies.

U.S. Dollar Weakens on Soft Macro Data and Rate Cut Expectations

Meanwhile, the U.S. Dollar has fallen across the board, influenced by softer incoming US macroeconomic data. This has raised concerns about a potential downturn in the world’s largest economy and increased the likelihood of emergency intervention by the Federal Reserve. Currently, market expectations for rate cuts from the Fed have surged, with many investors hoping for an initial double-cut in September.

Looking Ahead: Key Economic Indicators and Market Expectations

As we move closer to September, the anticipation surrounding the next steps of major central banks is growing. The BoE’s future rate decisions will be closely watched, given their potential impact on the British Pound. Similarly, the performance of the Eurozone’s retail sector will be pivotal for the Euro, while the U.S. Dollar’s trajectory will largely depend on how the Federal Reserve addresses the emerging economic challenges.

In summary, the currency markets are in a state of flux, influenced by varying economic indicators and central bank policies. As traders and investors navigate these turbulent waters, all eyes will be on the key economic events and decisions that could shape the financial landscape in the coming months.

Market Update: Currency Movements and Investor Sentiment

Posted on by Will R

GBP Struggles Amid Fiscal Concerns

Yesterday, the British Pound faced a challenging start as concerns over the UK’s fiscal health and potential tax increases unnerved investors. The anxiety came ahead of Chancellor Rachel Reeves’ address to Parliament, where she was expected to outline the government’s fiscal plans. Despite the initial volatility, reassurances from Cabinet Officer minister Pat McFadden that no tax announcements were imminent helped to calm the markets, reducing some of the pressure on the GBP.

EUR Remains Static Amid Lack of Data

The Euro struggled to capitalize on the Pound’s difficulties, primarily due to a lack of significant economic data from the Eurozone. Investors in the EUR were hesitant to make bold moves ahead of critical data releases later in the week, including the Eurozone’s GDP figures for the second quarter and July’s inflation data. These upcoming reports are expected to provide more direction for the common currency.

USD Finds Support Ahead of Federal Reserve Meeting

The U.S. Dollar managed to regain some ground, driven by anticipation of the upcoming Federal Reserve meeting. Investor speculation centered on whether the Fed would signal any rate cuts, with soft inflation readings and dovish comments from Fed officials bolstering expectations of a 25 basis point cut in September. This anticipation led to increased flows into the greenback, reinforcing its position in the market.

Looking Ahead

As the week progresses, investors will be closely monitoring key economic indicators and policy announcements. For the GBP, continued clarity on the UK government’s fiscal strategy will be crucial. The EUR will likely see more movement post the release of the Eurozone’s economic data. Meanwhile, all eyes will remain on the Federal Reserve’s actions and signals, which will be pivotal for the USD’s trajectory.

Stay tuned for more updates as we continue to track these developments and their implications for the foreign exchange market. For personalized advice and detailed market analysis, please contact our team at Synergy Exchange.

Inflation fears haunt the markets

Posted on by Wordpress Admin

The week ahead sees a busy data calendar, especially in the United States, which has the release of the monthly employment data as well as the latest inflation report scheduled.

Gross Domestic Product is the major release in the UK, whilst Europe sees inflation and sentiment indicators released. Of course, geopolitical events will dominate, and hopefully, we will see some forward momentum in the peace process between Ukraine and Russia and risk sentiment will improve. Although not affecting the markets yet, there is a Presidential Election in France during April and soaring Covid infections in Europe factors that may soon concern investors. Closer to home, the markets will continue to digest Rishi Sunak’s budget whilst the ramifications from Brexit are never far from the front page. Finally, the week ahead may see some volatility midweek as we approach quarter-end and the rebalancing of portfolios after an extraordinary period of bond and equity price movement.

Relative calm returned to the currency market last week, with all the major currencies trading within a narrow range. Overall the direction of the G3 currencies followed risk sentiment when it improved sterling, and the euro rallied, and when it worsened, they drifted lower. The war in Ukraine played out in the background but had less impact on the currencies than the speeches of policymakers from the Federal Reserve. With the Federal Reserve sounding increasingly hawkish over the fight to control inflation, the derivative markets are giving a .5% upward move in interest rates after the next Fed meeting a better than 75% chance. The US bond markets also subscribe to this theory and ended a very volatile week with yields sharply higher. The Bank of England may also now be reassessing the timing and size of its next move after the disappointingly high inflation report published Wednesday. With the Bank of England and the Federal Reserve both looking to tighten policy, the odd one out remains the European Central Bank, limiting the euro’s upside potential for the time being.

GBP
The Bank of England, politicians, and the public had their worst fears confirmed last Wednesday with the publication of the UK’s inflation readings. As we are sure you know, the headline rate was the highest since March 1992, and worryingly it is yet to peak. With energy prices still yet to fully hit the indexes, it is not beyond reason to expect a double-digit headline figure over the coming months. The uptick places more pressure on the Bank of England, who have to explain in writing to Parliament when inflation tops 2%. With the inflation rate starting to run away, speculation is increasing that the Old Lady will hike rates more aggressively than they have recently, possibly by as much as .5% in line with expectations of the Federal Reserve’s moves. With rising interest rates, sterling should stay in demand against the euro; however, it feels like it is capped at its recent highs. This week looks set to be a quiet one for the data docket, with the main event being the release of the final reading of the Fourth Quarter Gross Domestic Product on Thursday. Also released will be Markit’s Manufacturing Purchasing Managers Index (PMI) on Friday. Several luminaries from the Bank of England are scheduled to give speeches this week including Governor Bailey later today and Ben Broadbent on Wednesday.

EUR
The euro is likely to stay under pressure from sterling and, in particular, the dollar until the European Central Bank signals that it is shifting policy to being less accommodative. This change is unlikely to happen whilst the bloc’s economies remain vulnerable to further energy price shocks due to the war in Ukraine. The single currency is also at risk of the side effects of a Russian default as several of its banks are deeply entrenched in the country. However, the euro is generally holding its ground, and it may be benefitting from all the bad news already being discounted. As we said earlier, geopolitics will drive sentiment this week, and we all hope that they take a turn for the better. It’s a quiet start to the week on the data front. The first interesting release is not scheduled until Wednesday when Business Confidence and Sentiment Indicators for the eurozone are released and Germany’s Consumer Price Index. Thursday sees German Retail Sales and Unemployment on the agenda, as well as the bloc’s Unemployment level. The week closes on a busy note with Eurozone Inflation published and Markit’s PMIs for Manufacturing. It is also a busy week for speakers from the European Central Bank, with Christine Lagarde and Fabio Panetta on the roster for Wednesday, followed by Phillip Lane on Thursday and Isabel Schnabel on Friday.

USD
The Federal Reserve is becoming increasingly uncomfortable with the level of inflation in the United States. With it now touching 40-year highs and yet to peak, the language has become increasingly punchy, and many now believe that the Fed will hike the cost of borrowing by .5% at both their May and June meetings. On Thursday, the US will publish its Personal Consumption and Income reports which may lend even more traction to the argument for aggressive hiking of rates. Last week saw the lowest ever level of job seekers confirming that the economy is in rude health. In reality, there are millions of jobs unfilled in the economy. Unlike most other developed nations, this is a concern due to its potential impact on wages, leading to an inflationary spiral. The week ahead sees no less than three employment reports starting on Wednesday with ADP’s private-sector report, followed on Thursday by the weekly jobless number. As usual, the first Friday of the month heralds the publication of the latest US employment figures in the guise of the Non-Farm Payroll report. Also scheduled is Consumer Confidence tomorrow, Q4 GDP on Wednesday and ISM Manufacturing PMIs on Friday. Finally, just in case you didn’t miss that extra hour in bed on Sunday morning, a reminder that the US is back to being 5 hours behind Europe from today.

Upward moves in interest rates ahead

Posted on by Wordpress Admin

This week we will see the response to the continuing rise in inflation from both the Federal Reserve in the US and the Bank of England closer to home, at their monthly meetings.

Both are expected to raise interest rates in what economists believe will be the start of a series of increases in the cost of borrowing as they attempt to put the inflation genie back in the bottle. However, both face the problem of second-guessing the impact of the war in Ukraine on economies. As oil prices rise, fears of a recession increase, and economists now have concerns that we could all now face a period of inflation and recession combined – so-called stagflation. Of course, overshadowing Central Bank meetings in London and Washington is the dreadful situation in Ukraine, and again this will dominate the markets, and we can only hope that some optimism returns soon.

Sadly, the financial markets were again dominated by the headlines coming from Ukraine. As risk sentiment ebbed and flowed, so did the currencies, with sterling falling as it soured and bouncing back when it improved. With the volumes traded in the GBPUSD generally less than in  EURUSD, sterling tends to move especially dramatically against the euro when volatility is elevated. The last week was no exception, and sterling ended the week lower against the euro as the single currency recovered against the dollar. The euro was helped by the European Central Bank adopting a more hawkish tone than anticipated after its monthly meeting. Increasing worries over the rise in inflation, set to be exacerbated by the continuing jump in energy prices, was behind the change in the ECB’s rhetoric. Inflation also dominated US markets towards the end of the week after another rise in the Consumer Price Index to a forty-year high of 7.9%.

GBP: With the war in Ukraine showing little sign of having a peaceful resolution, the dollar will continue to stay in demand for its safe-haven status, keeping downside pressure on the pound. Conversely, if any sign of escalation becomes apparent, sterling could be one of the beneficiaries as it remains fundamentally underpinned by the prospect of rising interest rates. The Bank of England is likely to reinforce sterling’s underlying strength at its monthly meeting of its Monetary Policy Committee this coming Thursday. The Old Lady was expected to raise the cost of borrowing before the outbreak of hostilities in Ukraine pushed energy prices higher. Whether accelerating inflation will overrule fears of a recession will give the Bank pause for thought is unclear. The currency markets expect another .25% hike, the third in quick succession. After February’s meeting, it was revealed that four out of the nine committee members had voted for a .5% move. Consequently, there is speculation that we may see such a move this month. Following the MPC meeting, Andrew Bailey will hold a press conference to expand on the reasoning behind the Bank’s actions. Ahead of the MPC meeting, the most recent employment figures are released on Tuesday and following it, on Friday, February’s Inflation data is released.

EUR: As we said previously, the European Central Bank took the markets somewhat by surprise with its hawkishness after its meeting last week. The euro recovered some of its poise after the meeting; however, in the race to tighten policy, the ECB lags behind the US Federal Reserve and the Bank of England, leaving it at risk. With both the BoE and the Federal Reserve set to move rates upwards this week, the single currency could face a tough time made worse by the bloc’s proximity to the war in Ukraine. The only data due out in the Eurozone this week is  Industrial Production data on Tuesday. But, with so much uncertainty over the cost of energy and its impact on industry, it’s unlikely that the data will move the market from being driven by geopolitical events.

USD: The Federal Reserve is the first of the two major central banks to host its monthly meeting this week when its members meet on Wednesday. The consensus seems to be for a 0.25% move upwards in the Fed Funds rate, although there remains the possibility, as in the UK, of a .5% move. Last week’s inflation print was close to 8%, and with it set to rise higher still, there will almost certainly be members of the committee who will favour the larger increase. Investors will also be watching out for the latest dot plot diagram detailing how Fed committee members see the course of interest rates in the coming year. The derivative markets predict six hikes in the coming year and will watch with interest to see if the Fed is in sync. As would be expected in these difficult times, Chairman Jerome Powell’s press conference will be significant in setting the tone for the markets. The week also sees the release of Retail Sales on Wednesday and February’s Industrial Production, and the weekly employment data on Thursday.

Sunny start to the month for Sterling

Posted on by Wordpress Admin

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

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

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

UK

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

Euro

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

US

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

Scandi

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

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

Is inflation rearing its head?

Posted on by Wordpress Admin

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

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

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

GBP

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

Euro

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

US

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

Scandi

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

Have a great week.
Synergy Team

Spring is in the air at last

Posted on by Wordpress Admin

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

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

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

UK

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

Euro

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

US

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

Scandi

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

Have a great week.

Synergy Team

Europe takes centre stage

Posted on by Wordpress Admin

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

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

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

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

UK

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

Euro

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

US

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

Scandi

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

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

Have a great week!

Synergy Exchange Team

Sterling get a trim ahead of the population

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

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

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

UK

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

Euro

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

US

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

Scandi

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

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

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