Foreign Exchange

Keeping the earth prosperous

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In the week when world leaders came to together to climate change at COP26 Summit, there was some significant developments and discussions in the markets about keeping the earth both green and prosperous for the next generation.

Keeping Earth Green

GBP:

The scaling back of the row over fishing licences with France failed to give sterling much impetus yesterday, and it has continued to trade in a very narrow range with a slight bias to the downside. The pound is likely to stay trading in a similar fashion ahead of yesterday evening announcement from the Federal Reserve and today’s Monetary Policy Meeting at the Bank of England. The only macro-economic data that may pique investors’ interest is the IHS Markit Purchasing Managers Index for the service sector released later this morning.

EUR:

According to the latest report from IHS Markit, European Purchasing Managers are still worrying about supply bottlenecks, particularly in Germany. The indexes put a little pressure on the euro in quiet trading on Tuesday, and overnight it has slipped slightly against the dollar as the Fed’s decision comes into focus.

Yesterday morning Eurostat published the September Eurozone Unemployment Rate, and later, European Central Bank board member Frank Elderson will speak twice at the Cop26 conference. However, this afternoon’s speech at the celebrations for the 175th anniversary of the Banco de Portugal by ECB President Christine Lagarde may be more enlightening on current ECB policy.

USD:

The US stock market had a slight wobble yesterday as the reality that the end of easy money may be drawing to close hit home. Like its British cousin, the greenback has been trading in a tight range as it awaits this evening’s confirmation that the Federal Reserve will now start tapering its monthly bond purchases by approximately $15bn. During the day, before Jerome Powell takes to the podium at the Fed’s press conference, the first of this week’s employment data is released when ADP publish their predominantly white-collar labour report. Markit and ISM are also scheduled to release Purchasing Managers Indexes for the Service sector, but they are unlikely to shake the markets with such an important event later.

Will dollar continue to dominate?

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

Dollar dominates

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

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

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

UK

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

EUR

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

US

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

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

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

Scandi

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

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

Farewell Mrs Merkel

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

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

Central Banks

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

GBP

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

EUR

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

USD

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

Scandi

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

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

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