Foreign Exchange

Dollar becomes King for the time being

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Last week the markets were overshadowed by the events unfolding in Kabul and across Afghanistan. With chaos seemingly engulfing the country, investors turned tail from riskier assets and sought the safe haven of the dollar.

This change in sentiment pushed sterling down almost 1.5% whilst the euro to its lowest level for nearly a year. The UK enjoyed a mixed week of macroeconomic data, which started with better than expected employment data; however, the inflation rate was lower than forecast, as were Retail Sales. A picture of a patchy and uneven recovery in the UK emerges when the data are taken together. This is likely to stay the case for the foreseeable future as the spread of the delta variant of Covid continues. Sterling also gave up some of its recent gains against the euro to end the week nearly a cent lower as a by-product of the dollar’s strength.

Afghanistan and, in particular, any signs of America’s hasty withdrawal prompting expansionist moves from China towards Taiwan will continue to concern the market in the week ahead. Also of concern will be the spread of the Delta variant of Covid, and it will be a surprise if risk sentiment improves too dramatically. Away from geopolitical worries, one event will preoccupy traders’ thoughts, and that is the Federal Reserve’s annual economic Jackson Hole Economic Symposium starting on Friday. Until then, with many bankers and investors still preferring their sunbeds to the office desks, it will probably be a quiet start to the week, especially in the UK and Europe, as there is very little on the data docket to excite.

UK

As we said previously, sterling had a miserable week that matched the weather in the UK. And although the weather is forecast to improve, sterling is likely to remain under pressure from the dollar for a while longer. The one bright sign last week was the UK’s latest unemployment report, but with analysts and traders picking on the less than satisfactory elements, it became apparent that the markets were looking for a reason to sell sterling. This week’s domestic data is relatively thin on the ground, with the only major release being the preliminary, or flash, Purchasing Managers Indexes (PMI) released as this report reaches your inbox. The figures are likely to have been distorted by the recent pingdemic as well as supply disruption and are unlikely to move sterling too much.

EU

As with sterling, the single currency remains at the mercy of outside events. With sentiment so risk-averse, it is hard to see too much of a recovery by the euro against the dollar. However, it remains towards the bottom of its recent trading ranges and could well be slightly oversold by institutions, so it may bounce back from its current levels. The euro gained against sterling last week, but this was the dollar bossing sterling more than any euro strength. As with the UK, there is very little to get economists excited this week with just the August Purchasing Managers Indexes released today.

Apart from these, it’s all German data starting tomorrow with Second Quarter Gross Domestic Product followed on Wednesday by August’s Ifo Business climate before the week closes with the Gfk Consumer Sentiment surveys. The only spokesperson from the ECB scheduled is Isabel Schnabel, who is speaking both tomorrow and Thursday.

US

Alongside the geopolitical implications of the American withdrawal from Afghanistan, the only other event that the market reacted to last week was the release of the minutes from July’s Federal Open Market Committee meeting. The minutes were non-committal on whether earlier tapering was in order now, with “several” saying a reduction in bond purchases may be more appropriate “early next year”. This week’s key event again revolves around the Federal Reserve, with the Kansas Federal Reserve hosting, albeit remotely, the annual Jackson Hole Symposium, which starts on Friday.

With the Delta variant of Covid forcing the meeting online, the Fed may disappoint the market by choosing to hold policy steady. If this was to happen, the dollar could sell off quite sharply. Data flow starts this afternoon with the August PMIs, followed by New Home sales tomorrow and Durable goods orders on Wednesday. On Thursday, revisions to second-quarter GDP and the weekly jobless report are released. Interestingly, the data week will close on Friday with one of the Fed’s key metrics, the Personal Consumption Expenditures Price Index.

Scandi

The Swedish krona suffered as concerns about geopolitics and financial market sell-offs caused beta currencies to weaken. Moreover, PM Löfven declared on Sunday that he will step down in autumn and won’t be the leader of his party. This does not warrant a new election but will merely see another party member of the Social Democrats take the lead and prepare for next year’s General Election. We will pay attention to the Unemployment Rate on Thursday and Retail Sales as well as GDP on Friday.

The Norwegian krone continues its slide, this time caused by the ever-decreasing core inflation figure. Speculation is therefore rife that Norges Bank Governor Olsen may have to delay his rate hike given the fragility of the recovery.

Another strong week for Sterling

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Sterling enjoyed a solid week last week, touching its highest levels against the euro for 18 months in quiet trading before retreating on Friday as speculators took their profits. Following a solid rebound in Gross Domestic Product, helped and gave encouragement thoughts of the economy returning to pre-pandemic levels before the year is out.

The Bank of England is now firmly positioned as one of the favourite central banks to start implementing a less accommodative policy relatively quickly, as is the Federal Reserve in the US. Their stance will continue to strengthen these currencies against most of the G10, with some exceptions such as the Australian Dollar. The euro is one of the currencies most likely to suffer from this scenario and, despite a recovery in its fortunes of Friday, looks vulnerable to suffer further falls.

The week ahead is another quiet week for macroeconomic data from the Eurozone. Still, this information gap will be adequately filled by a full week of statistics from the UK and some interesting releases from the US.

With the markets firmly in the summer doldrums, currencies can reasonably be expected to stay within their current ranges unless an unexpected event upsets the calm. However, with the Delta variant of Covid causing more problems in the US, a shock from that direction cannot be totally discounted, and it may already be affecting growth prospects if Friday’s unexpectedly sharp fall in US Consumer Confidence is anything to go by. Finally, we will be monitoring risk sentiment closely after the weekend’s events in Afghanistan and any regional repercussions from them.

UK

As previously mentioned, sterling had a good week, especially against the euro. The data flow gets underway tomorrow with the release of the Unemployment rate for July, which is expected to show a modest fall. However, it must be remembered that the ongoing job support schemes still distort it. On Wednesday, the July Consumer Price Index (CPI) is released, a figure that is likely to be slightly unreliable due to the distortion to prices caused by last year’s reopenings in the same month. It will come as no surprise if a lower rate is recorded and probably ignored by the markets. Finally, on Friday, July’s Retail Sales and the Gfk Consumer Confidence readings will be released. Hopefully, after this tumult of information, we should have a much clearer picture of how the economy is recovering, which will set the short-term direction of sterling. Apart from the macroeconomic information, the other influences on sterling’s path will be the speed of the spread of Covid and disputes over the Brexit treaty, which still appear to be rumbling in the background.

Eurozone

A relatively quiet week of data for the Eurozone is in prospect. Still, the reports that are released should make for interesting reading but are unlikely to lend the euro too much strength against either sterling or the Dollar. First off the printing press is the first revision for Second Quarter GDP tomorrow morning with a consensus forecast of around 2.00%. Next up on Wednesday is the Consumer Price Index, which analysts expect to show a relatively subdued reading of 2.2% compared to its main trading partners. Finally, with the German election looming in September and a tight race to replace Angela Merkel developing, the market is starting to watch opinion polls more attentively, and they may come to influence the euro’s direction.

US

With inflation still showing underlying strength in the US and employment on the up, the Dollar continued to shine as more officials make a case for a policy change. Many in the currency markets expect some talk concerning this at the Federal Reserve’s Jackson Hole Symposium at the end of this month. Ahead of the meeting and with a shortage of scheduled speakers from the Fed, Wednesday’s release of the minutes from July’s Federal Open Market Committee meeting will take on more importance than usual. The data week starts tomorrow with July’s Retail Sales, which are expected to be distorted by supply chain disruptions in the car market. Also on the slate tomorrow is July’s Industrial Production, and in addition to the FOMC minutes on Wednesday, Housing starts are released. Finally, the weekly Jobless claims report is published on Thursday as usual.

Scandi

It was another rather uneventful week for the Swedish krona, which was once more very much rangebound against all G10 currencies. The inflation figure came in as expected, thus strengthening the current sentiment that the Riksbank will not take any action for the foreseeable future. This week sees no important data releases.

The Norwegian krone suffered as the White House called for oil production to be increased, despite falling demand. Such macro events seem to drive the krone rather than data releases. This week Governor Olsen is expected to keep rates unchanged on Thursday. The press conference will be a significant event where market participants will look for hints if an interest rate hike is coming or not, given the past eight months of less than terrific data. At the start of the year, a hike for September was pretty much a certainty.

A busy week ahead

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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.

UK

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.

Euro

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

US

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.

Scandi

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

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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!

UK

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.

Euro

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.

US

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!

Scandi

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%.

Will Sterling deliver again?

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We ask is Sterling going to deliver again? After a week that saw consistent buying of the dollar, encouraged by mid-week rebalancing needs, there was a bout of profit-taking on Friday despite the US Labor Department’s employment data strength.

A headline figure of 850,000, although towards the higher end of the forecasts, didn’t lead to further buying of the dollar, although it still managed to end the week almost a cent higher against sterling. It is becoming apparent that COVID has changed not only the jobs available but, as significantly, people’s attitudes towards work, with many permanently leaving the workforce or taking early retirement. With a shrinking pool of available labour and growing demand, wages are likely to start edging higher. As they do, the calls for the Fed to tighten sooner than expected will increase, and the dollar will continue to find favour.

The week ahead is much quieter on the data front, but there are potentially some interesting reports to study as well as an England performance to savour (we hope!). With the so-called sausage wars apparently, fizzling out, attention is now likely to turn to the increasing number of cases of the Delta variant of COVID in the UK and Europe. With, so far, hospitalisations in the UK falling far below the previous levels, the impact is likely to limited to the psychological damage that rising case numbers can cause. Across the Atlantic, we have a holiday-shortened week with the US closed today for Independence Day, which for many signals the start of the holiday season; consequently, volumes may be lighter than usual, which tends to exaggerate moves.

UK

Sterling has opened a little firmer at $1.382 against the dollar this morning and is little changed against the euro at €1.1650. Overall, it is still performing relatively well in comparison to its G10 counterparts. This strength is partly down to the market’s expectation that it will follow the Federal Reserve’s policies quite closely when the time comes to tighten. With COVID cases rising across the UK, analysts are starting to question how much the public’s confidence will be impacted. If the growing hesitancy to return to everyday life continues to increase, economic recovery may stall, which would destabilise sterling. We have a barren week report-wise until what will undoubtedly be dubbed frantic Friday when May GDP data, Industrial Production, and Manufacturing Production are all released. After last week’s adverse reaction to his Mansion House speech, any further comments from Bank of England Governor Andrew Bailey will be studied for their dovishness.

Euro

Another quiet week is in prospect on the European data front, leaving the euro at the mercy of the dollar. After it shed over a cent in a week, it still looks a little vulnerable; however, it is opening a little better at $1.1855. Concerns over the rise in cases of the Delta variant of COVID on the continent are starting to mount. If the numbers continue to increase, this will lead to further pressure on the euro. Whilst making good progress, Europe is still behind on its vaccination programme, making its economies more vulnerable to the rapid spread of this variant. Today, the data week kicks off with the Sentex Investor confidence surveys for the Eurozone and Markit Services Purchasing Managers Indexes. Tomorrow, we have further investor confidence reports with the release of the ZEW Surveys for both Germany and Europe. Eurozone Retail Sales data is also scheduled for tomorrow. We expect an upgrading in growth prospects on Wednesday when the European Commission’s summer forecast is released, as is German Industrial Production. There is also a special meeting of the ECB starting over supper tomorrow evening to discuss strategy and possibly set a new inflation target.

US

After recent comments from Federal Reserve’s Christopher Waller and Robert Kaplan, the dollar will continue to appreciate if the economic data continues to show strong growth. After last week’s excitement over employment, we return to a less exciting calendar. First up, Job Openings and Labour Turnover statistics (JOLTS) are released tomorrow, which will be studied for further clues to how the labour market is adapting to the post-COVID world and the frequency that people are swapping jobs. Some analysts think that these changes will add to the upward pressure on wages which is yet to happen. The ISM Services Purchasing Managers Indexes are also published tomorrow. On Wednesday, we have the release of the minutes from the most recent Federal Open Market Committee meeting, which will be dissected for further clues to how strong the hawkish tendency is and who it includes. Finally, as usual on a Thursday, the latest weekly jobless total will be announced and studied to see if the reduction in benefits is continuing to encourage people back to work.

Scandi

The Swedish krona was very much rangebound despite prime minister Löfven inviting the opposition to try to form a government after losing a motion of no confidence. So far, they have been unsuccessful, and a new election is unlikely to be called by the incumbent. We have now officially entered what is usually a calm period for the Nordic region’s largest economy. This week kicks off with the PMI Services figures, the Budget Balance on Wednesday, followed by the Industrial Orders and Production, Gross Domestic Product, and the latest Household consumption data. Thursday will see the anticipated Swedish Housing Data being released.

The Norwegian krone has been lacklustre lately, and with the summer holiday now in full swing, most market participants expect it to be somewhat rangebound for the next few weeks. This week we will get the industrial production figures out on Wednesday and the latest GDP figure.

Denmark gets a mention this week as it is the last Nordic country left in the Euro2020 championship and is playing against England in the semi-finals on Wednesday. Despite this rather spectacular achievement (and inevitable increase of Carlsberg sales), no market participant expects this feat to impact the current EURDKK peg nor levels.

Sunny start to the month for Sterling

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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?

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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

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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

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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.