Foreign Exchange

The pound celebrates the lunar new year!

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Good Morning, today is lunar New Year 

The celebrations for Chinese New Year slowed the currency markets last week as many traders were side-lined by the festivities, but it didn’t slow the pound’s progress which saw it consolidate recent gains above the $1.3750 level. The continuing success of the UK vaccination programme is still the primary influence and overshadowed the burgeoning spats with Europe, which are now focusing on the provision of financial services and the Northern Ireland Protocol. Away from the preoccupation with vaccination rates, investors continued to worry whether inflation is starting to take hold of economies; consequently, interest rates are edging up. As rates move up, they tend to drag currencies with them. So far, the move’s primary beneficiary has been the dollar as traders eye a more rapid recovery there than elsewhere.

Gradually, the market is starting to look away from the damage that the pandemic has caused and as it does hospitalisations and vaccine rates will become less critical and macro-economic data will again be the primary driving factor. Politics, away from the Eurozone, is also now less influential, and the impeachment of Donald Trump has been a sideshow. In the week ahead, we will know whether the fears of inflation are overcooked with the release of sales data in the US which empirical evidence on January spending from credit and debit card transactions infers will be a healthy number. In the UK we will also be watching out for the latest inflation data and hopefully further good news on vaccinations which will continue to support the pound at these higher levels.

UK

It looks like the UK will miss a double-dip recession despite last Friday’s official figures reporting the worst annual drop in GDP for three hundred years.  The statistics also showed that the recovery had slowed sharply in the previous quarter. Still, with the country in a national lockdown for most of the time, this was hardly surprising. With the R rate now at its lowest level since last July investors are becoming more optimistic as is the pound which has opened strongly this morning at $1.3875 and €1.1465.  This week’s data is all about the consumer who is the crucial component of recovery. Sterling is already anticipating better times ahead when optimists expect the pent-up demand built up over the last year to be unleashed as the country is released from lockdown. Both politicians and economists forecast a mini-boom that could encourage an uptick in inflation. Sadly, the fear is that unemployment will act as a cap as will the possible rises in taxation. This week we will get a glimpse of whether the market is getting ahead of itself on inflation fears when the Consumer Price Index is released on Wednesday. The only other figures of note are the January Retail Sales and preliminary Purchasing Manager’s Indices, both released on Friday. Comments from David Ramsden’ who has oversight of markets for the Bank of England, may stir some interest when he speaks on Wednesday.

EU

Mario Draghi was announced as Prime Minister of Italy last week, which has taken some political pressure away from the euro. Still, Ursula Von der Leyen, President of the European Commission and the upcoming elections in the Netherlands on March 17th ensure a modicum of uncertainty. Last week, the euro regained some ground that it had lost against the dollar and has opened at $1.2140. This week we will watch the vaccination rates, and we also have a busy few days on the data docket starting today with the latest Eurozone Industrial Production figures. Tomorrow the market in euros should become more volatile with Eurozone GDP and Employment released and the newest ZEW surveys from Germany. Thursday we will be watching Consumer Confidence in Europe and on Friday, in common with the rest of the world, Purchasing Managers Indexes are announced. The European Finance Ministers are meeting on Tuesday, and there is an ECB report released on Thursday when Isabel Schnabel, from the ECB, is slated to speak.

US

With the US shut for Presidents Day today and China still celebrating its Lunar New Year a sluggish start to the week is anticipated. The stock markets closed, yet again at record highs on Friday whilst the dollar stayed under a little pressure as traders tidied their books for the long weekend. Last week the dollar struggled to recover strength as traders remained worried by the jobs market and the seeming snail’s pace of the Joe Biden’s $1.9tln Stimulus bill through the law-making progress. However, with Donald Trump cleared of impeachment over the weekend the legislative calendar in the US Congress has unexpected space that should enable it to push ahead more rapidly with passing the bill into law, in turn driving the pound higher. On the data front, the highlights this week will be the latest Retail Sales and Industrial Production data on Wednesday. We will also be watching the Purchasing Manager’s Indexes on Friday. Released on Wednesday are the minutes from the last Federal Open Market Committee meeting which should confirm Jerome Powell’s dovish stance.

Scandi

The Swedish krona was the most volatile G10 currency last week. It ended the week higher against most other currencies and neither the Riksbank’s rate decision nor Governor Ingves’ press conference carried any surprises for the markets. As things are brightening up with rumours of countries exiting lockdowns come spring, beta currencies such as SEK are posed to gain further ground. The krona remains most analysts’ favourite funding currency and has a chance of benefitting further from any risk-on appetite. This week is thin from a macro perspective, and some parts of the country have started their mid-term holidays. The latest CPI figure is released on Thursday and is expected to come in at 1.5% on a Year-On-Year basis.

The Norwegian Krone is the best performing G10 currency so far this year. The inflation figure came in at 2.5% which will only further strengthen Governor Olsen’s warning that a rate hike to control prices from increasing too fast may be on the cards earlier than the markets anticipate. The GDP figure pointed to strong growth too, beating even the most optimistic surveys. This week sees no major data releases.

Sterling moves on up

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Good morning, the stock markets’ threatened volatility didn’t materialise last week; instead, the stock markets enjoyed their best run since November, and the currency markets returned to watching vaccination rates. Sterling put in a strong performance against all the G10 currencies and has opened this morning at €1.1400.

Sterling’s rally has its foundations in the vaccine rollout’s continuing success, which has now seen over 12 million vaccinated. Also helping the pound was the unusually upbeat assessment by the Bank of England of the UK’s economic recovery’s potential speed and its reluctance to introduce negative interest rates. Against the dollar, it traded in a relatively tight range as the greenback moved, firstly to the likelihood of the stimulus package proposal being passed then, later in the week to the grim employment report.

For several months, the dollar has been tracking risk sentiment in global equity markets. However, this correlation seems to be dissipating as the markets start to focus on early signs that inflation may be rearing its head again. Commodity prices are moving up in the US as are oil prices, and as the world recovers these moves will become more relevant. However, the fed has introduced flexible inflation targets which will limit the upside in short-term interest rates, in turn capping the dollar’s rise. In the week ahead, we will be watching for confirmation on how inflation is behaving when the US’s latest Consumer Price Index is released. We will also be studying how the vaccine rollout continues across the world and any escalation of geopolitical tensions.

UK

For the second time in recent history, sterling was the best performing currency in the G10 last week as the Bank of England helped encourage the already positive sentiment created by the vaccination programme. The Bank of England has effectively put negative rates back into its toolkit and now expects strong growth, starting in the second quarter. Underpinning the positivity was the fact that the government has decided to go ahead with the local elections in May. This is being seen as a sign that hopefully, lockdown can end sooner rather than later, and the economy can start to recover. A quiet week is in prospect until Friday when Gross Domestic Product for the fourth quarter is released, which is expected to show only marginal growth. Also released on Friday are Industrial and Manufacturing production for December, but as they cover a lockdown period, it’s unlikely that they will impact sterling. Governor Bailey will be speaking twice this week. Today he faces questions from the Treasury Select Committee and on Wednesday he will deliver the traditional Mansion House speech, albeit without the backdrop of the formal dinner.

Euro

The euro had a disappointing week and traded below $1.2000 for the first time for several months before it bounced back after the dire Non-Farm Payroll figures in the US. The previous week’s recriminations over Europe’s vaccination programme seem to have eased however it is still lagging behind the UK, which is helping sterling stay bubbly. The return of Mario Draghi has helped calm the political problems in Italy. If he can secure a parliamentary majority, this will help the euro however Emanuel Macron remains under pressure from Marine Le Pen which will continue to worry investors. December’s Industrial Production figures for Germany were released this morning and were slightly worse than expected, and on Friday we will get to see the combined data for the Eurozone. The only other noteworthy data is Germany’s Consumer Price Index (CPI) released on Wednesday. ECB president Christine Lagarde is scheduled to speak later but is unlikely to deliver anything likely to move the markets.

US

The dollar is increasingly being driven by the stimulus bill’s passage through the law-making process which we will be following attentively. Last Friday’s employment data increased the pressure on Joe Biden to succeed in passing the bill. After last week’s data-heavy calendar there is not too much to excite this week apart from the release of January’s CPI on Wednesday which we will study closely for any uptick in inflation. Of course, as usual, we have the weekly jobless report on Thursday.

Scandi

The Swedish krona was rangebound throughout last week but strengthened towards the end against the euro as the latter began weakening against all major currencies. Against sterling, the krona continues to trade stronger than its average for 2020. Still, it has now entered territory which from a technical perspective may suggest that it is going to be somewhat rangebound. The major event this week is the Riksbank Interest Rate decision which is announced on Wednesday. The markets expect no change in monetary policy, and once again, all eyes and ears will be on the press conference. Loyal readers of the Weekly Report will remember speculation in the financial press regarding the report that the Riksbank will repay foreign currency loans on behalf of the Debt Office. This announcement coincided with a one-month long Swedish krona bull run in early January. We will closely monitor how Governor Ingves addresses the reporters’ questions concerning that.
The Norwegian krone’s long road back to levels pre-COVID-19 is slowly coming to an end. The successful vaccine rollout and sentiment that global travel will resume in the not-so-distant future has buoyed the currency. It was also lifted by Norges Bank Governor Olsen’s comments that the market may not be pricing in a not-too-distant rate hike. For that to happen, the market expects inflation to pick up and move closer to the 2% target. On Wednesday, the Inflation figure is released and is expected to come in at 1.8% on a Year-On-Year basis. On Friday, the GDP figures are disclosed and are expected to come in at a respectable 1.3% growth Quarter-On-Quarter.

Volatility is back

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Good morning, having been a relatively quiet start to the new year volatility returned to the markets with a vengeance last week as small traders took on the wall street monoliths in the stock market.

As the equity markets gyrated so did investor’s risk assessments and the dollar’s attraction waxed and waned. Regardless of whether it is American stock markets causing the change in sentiment, the dollar reacts almost simultaneously. As Asian bourses (stock exchange) open stronger this morning so do the beta currencies, such as sterling which has opened at $1.3725 against the dollar. World geopolitical tensions are also rising with Taiwan being threatened by China and new restrictions in Hong Kong. Europe’s attitude towards vaccines in administering them and the distribution is another worry for the market, and the euro looks set to suffer some more.

A busy and jumpy week is in prospect with initially the same data narratives looking likely to dominate trader’s thoughts. The pandemic’s containment and vaccine distribution will still be uppermost in determining the direction of currencies, and the pound seems the most likely to benefit. Any further delay in distributing vaccines will add to the markets’ generally gloomy mood as their success is linked directly to economic recovery. We have a data-heavy week ahead in both Europe and the US. We will be watching to see if European data continues to be generally downbeat this week, unlike the US, which was mostly upbeat with GDP beating expectations last week.  The markets will also be watching for hints from the Bank of England on policy and to see if any progress can be made on the US’s fiscal stimulus bill. And of course, whether the retail trader phenomenon continues and the authorities’ responses to it.

UK

Last week, the pound put in a good performance holding up well against the resurgent dollar and gaining against the euro. Slightly better than expected employment data gave the pound a boost as did the vaccination programme’s continuing success, which has seen over 12% of the population inoculated. Sterling is also benefitting from what appears to be, at least in the short term, a relatively painless departure from the EU. It has opened at €1.1320 against the euro as the market awaits to see how Wall Street moves this afternoon. The critical event we will be watching out for this week is the monthly Bank of England meeting on Thursday. No change is expected on its monetary policy, but its review of negative interest rates will be watched for any hints that they could be enacted. The BoE Governor is also set to speak on Friday afternoon. Away from the Old Lady, a quiet week on the data docket is in prospect apart from the Markit Manufacturing Purchasing Managers Index which is released this morning.

Euro

The political backdrop in Europe looks likely to continue to worry the markets as disquiet is increasingly being manifested at both lockdowns and the slow rate of vaccinations, culminating in the spat between the commission and the drug manufacturers. Investors now fear that these feelings will manifest themselves at the ballot box when countries including the Netherlands, Germany, and France, have upcoming elections causing upheaval in the current political establishment.  A hectic week ahead for data in the Eurozone with Gross Domestic Product for the fourth quarter released tomorrow. Individual country estimates indicate that the second wave hasn’t impacted as negatively as the first. Later this morning the latest unemployment figure for the eurozone are released. On Wednesday, January’s inflation reading is released where an uptick is expected and Thursday the latest Retail Sales.

US

Another challenging week looks to be in prospect for Joe Biden. Global stock markets are possibly set to move wildly again as day traders in the US battle with hedge funds. As this happens, risk sentiment will swing around taking the dollar with it, and beta currencies such as sterling will follow. Several speakers from the Fed are scheduled this week, and investors will be listening for any response they show to the markets’ extraordinary conditions. The new administration is still trying to drive its $1.9tn stimulus plan into law, and it now looks like Joe Biden will be forced to split the package into separate bills. Also clouding the water is the impeachment trial of Donald Trump on 8th February. The eyes and ears of the financial markets will turn to the States in the early afternoon on Friday when January’s employment, Nonfarm Payroll, data is released on Friday. These will be preceded as usual by the ADP white-collar employment data on Wednesday and the weekly jobless claims on Thursday.

Scandi

January proved to be relatively uneventful and the Swedish krona was rangebound throughout most of it. This, despite rumours in the financial press that the schedule for repayment of foreign exchange loans announced by the Riksbank as the krona was strengthening, was done to manipulate it lower. February kicks off this morning with the Swedbank Manufacturing PMI, and we will also get a flash GDP reading. Later in the week, we will get a reality check on the Swedish housing market on Tuesday and on Friday the Budget Balance is published.
The Norwegian krone ended the month on average lower against most G10 currencies even though Norges Bank Governor Olsen once again warned the market that a rate hike may come much sooner than anticipated. This week starts with the DNB PMI Manufacturing Survey followed on Friday by the Industrial Production figure.
In Denmark Sunday was spent celebrating the 26 – 24 wins against Sweden in the final of the World Men’s Handball Championships. Welcome news for a nation battling an impeachment case and still reeling from the decision that killed Europe’s largest fur export industry in less than a week. We will monitor any decisions concerning the compensation due to the mink farmers and any further political drama that may unfold due to the aforementioned.

Vaccinations and viruses set to dominate

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Good Morning, after the fears of violent disruption to President Biden’s inauguration proved to be unfounded, the market has returned its attention to COVID-19 and the proposed stimulus package.

Sterling has so far been a beneficiary from the success of the vaccination programme’s roll-out, which is now seeing nearly 500,00 inoculated daily.

However, after Boris Johnson warned of the new strain’s virulence, the pound may start to ease back. Currency traders will be watching out for more information on this as they will the vaccination rate. The perceived wisdom is that countries that vaccinate the quickest will see their economies recover fastest. In this respect, the UK is striding ahead of the US and Europe, having vaccinated over 10% of the population.

In the week ahead we will be watching to see if Joe Biden can circumvent any filibustering attempts by the Republican party in the Senate to stall his $1.9trn stimulus package. For the man on the street, the aid is desperately needed, and if Joe Biden fails to get enough bipartisan support, the recent rise in the dollar could stall. The disappointing December Retail Sales released last Friday raised questions about the UK economy’s ability to bounce back. This week, we will get further clues about it when the latest unemployment figures are released. We will also be watching political developments in Europe, particularly Italy. The other events of note will be the “virtual Davos” meeting where we will hear most of the world’s leaders opening on COVID-19 and midweek the monthly Federal Reserve meeting, and press conference will take place.

UK

Sterling has opened strongly this morning, above $1.3700 following on from last week’s solid performance. Vaccinations are continuing apace, and as yet few problems seem to be surfacing because of Brexit. Late last Friday afternoon, the prime minister did sound a warning shot about the dangers of new variants of the virus, which may lead to a longer lockdown than anticipated. The market is now putting more emphasis on the rate of vaccinations than backwards-looking data, which is just as well after Friday’s disappointing Purchasing Managers Index (PMI) and Retail sales figures indicated that a double-dip recession is now likely. Countering this was the good news of a reduced risk of negative interest rates and a surprising uptick in inflation. In the coming week, we will be watching for the Unemployment figures tomorrow which are expected to have climbed again to above 5% despite the furlough scheme’s extension.

Euro

The euro has seemingly been defying gravity recently and has opened at $1.2150 against the dollar; however against sterling it is more restrained at €1.1250. Political problems will continue to concern investors in the single currency, with Italy’s future leadership still hanging in the balance. Inadvertently, the European Central Bank gave the single currency a nudge up with a technical adjustment to its Pandemic Emergency Purchase Programme (PEPP), which was taken as a hawkish move by market observers. There are plenty of speakers to occupy the market this week with the ECB’s Christine Lagarde starting the week on Monday and its chief economist Phillip Lane speaking on Wednesday. Emmanuel Macron and Angela Merkel will also get their opportunities to pass comment at the virtual Davos meeting. A full data docket awaits us as well, with Germany’s IFO Business Climate report first out this morning. Then we wait until Thursday for the next meaningful figures: the Eurozone Industrial and Consumer confidence readings as well as a snapshot of Germany’s inflation data. The week closes out with German GDP for the last quarter and its most recent unemployment data.

US

The celebratory parties are well and truly over for Joe Biden, and it’s down to work this week in his efforts to unite the country and control the second wave of COVID-19. Despite the Democrats’ best efforts, the Stimulus Relief bill is stalling and as it does the dollar is stuttering. The markets will be watching to see if instead of one sizeable all-encompassing bill, he decides to get relief packages passed in piecemeal stages. As elsewhere, the vaccination rate will be studied, as will the take-up level, as economists try and read the economic recovery pace. We also have a busy data docket to look forward to starting with Consumer Confidence tomorrow. Durable Goods orders follow this on Wednesday, and the Federal Reserve holds its first meeting of the Biden era on Wednesday followed by Jerome Powell’s press conference. It is expected he will increase pressure for more stimulus and reassure the markets of the Fed’s willingness to act. Thursday sees preliminary 4th quarter GDP and Jobless claims, and we close out the week with Personal Income and Consumption data.

Scandi

The Swedish krona was rangebound last week in what was a tranquil week despite comments from Riksbank official Jansson saying that interest rates can drop down to negative in the future. The muted response from the market is being viewed as positive, and the recent bull run may continue. The border between Norway and Sweden was shut on Sunday by Swedish authorities as the increasing number of mutated viruses started escalating in bordering Norwegian towns. This week we will keep a close eye the inflation figure out on Tuesday and the trade balance on Wednesday. The official unemployment figure for December is out on Thursday together with the Christmas retail sales. Swedish retail consumption is expected to have decreased by 1% compared to a year ago.
The Norges Bank kept its interest rate unchanged but once again cautioned the market that it may be positioned too short. Speculation in the financial press is now rife that Norway will be the first G10 currency country to raise interest rates. The mutated virus is now spreading in Norway and Oslo has gone into a full lockdown, again. This week we pay extra attention to the unemployment rate, which is out on Friday. It is expected to have increased to 4.3% from 3.8%.

 

The world focuses on Washington

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Good Morning, one event above all else will dominate the headlines this week, the inauguration of the 46th President of the United States, Joseph Robinette Biden Jnr.

With large numbers of the National Guard deployed in possibly the tightest security ever witnessed for the event, we hope that the authority’s precautions deter the feared violent protests.

Last week we got a glimpse of his plans for a substantial stimulus totalling nearly $2tln. How quickly the new President can pass this will be down to how accommodating the defeated Republicans chose to be. Whilst pleasing the markets initially, the proposed package’s size will necessitate an increase in treasury bond issuance to fund the plans. Treasury yields have started to reflect this fact and have been increasing recently. The risk-off sentiment is beginning to grow, and as it does so will the attraction of safe havens such as the dollar.

Politics are also starting to influence the euro’s direction with the continent looking suddenly less stable. Italy’s coalition conflict is now looking likely to end with a confidence vote in Prime Minister Giuseppe Conte, Mark Rutte’s government in The Netherlands has resigned and further North in Denmark an impeachment trial is likely. In Germany, the Christian Democratic Union party has chosen a successor to Angela Merkel, and Armin Laschet will now lead the party to the General Election in September. When combined, these individual factors are starting to spread a little uncertainty about the bloc’s unity.  Vying for headline space will be the continued advance of COVID-19 and the introduction of stricter lockdown measures, particularly in France, Italy and Germany and the slowness of the vaccination programme in Europe.

UK

Sterling was the best performing G10 currency last week, not something that occurs too often. It has opened this morning easier against the dollar at $1.3570, but it is still trading strongly against the euro at €1.1235. For once, the UK looks relatively stable politically, and its vaccination rollout programme’s efficiency is helping sterling find buyers. The pound was also supported by Andrew Bailey, Governor of the Bank of England, all but dismissing the prospect of sub-zero interest rates despite his deputy  Tenreyro arguing that they were possible. In the coming week, we will get to see a snapshot of inflationary pressure, if any, when the Consumer Price Index is released on Wednesday. We will see how the consumer acted over the Christmas period when December’s Retail Sales are issued on Friday. Also, on Friday, Markit will release its preliminary figures for the Purchasing Manager’s Index. BoE Governor Andrew Bailey is giving a speech later today, and his Chief Economist Andy Haldane is speaking tomorrow.

US

Away from the pomp and ceremony of Wednesday’s inauguration more mundane problems will be occupying the financial markets this week. After a week of disappointing data that culminated with December’s Retail Sales dropping by more than expected and containing downward revisions for previous months, sentiment has become more risk-averse. The dollar may find buyers as a safe haven if Iran continues to test the new President’s resolve. Its a Bank Holiday in the US  today celebrating  Martin Luther King’s Birthday. This week’s critical data will again be the weekly jobless claims on Thursday, and we will also be watching out for the release of US housing data during the week.

Euro

Some political instability is creeping into Europe; consequently, the euro has been slipping and is now trading at 1.2075. Also encouraging selling pressure were the minutes from the previous ECB meeting in December, which highlighted concerns about a strong euro and its effect on inflation. The week ahead is a busy one for data and more importantly meetings. We start the week with Germany’s Consumer Price Index tomorrow and the ZEW Economic sentiment surveys. On Wednesday, the European Consumer Price Index is released as is the German Producer Price Index. The week closes out with the Markit Purchasing Managers Indices for the European constituent countries and the zone as an entity. It is also a big week politically starting today with the Eurogroup meeting. The European Central Bank meets on Thursday after which its President Christine Lagarde will give a press conference. There is also plenty to anticipate from the EU Leaders summit meeting on Wednesday when it is expected they will focus on the speeding up the vaccination roll out and implementing the recovery fund.

Scandi

The Swedish Krona’s latest bull run has not escaped the hawkish eyes of Riksbank Governor Ingves. The Swedish Krona, which until recently has been on the long and winding road back to levels last seen in 2018 weakened spectacularly after the Riksbank suddenly announced that it intends to pay back foreign loans on behalf of the Swedish Debt Office over the next two years. They will do this by selling SEK 185bn and buying foreign reserves. The financial press immediately speculated about Central Bank fx intervention, but the Riksbank later denied that. Whilst it is impossible to know for sure what is going on behind that locked door of the Riksbank, the market’s verdict spoke for itself, and it appears as if the Riksbank will have to do some more convincing. This week contains no major data releases, and we will closely monitor the movements from a more technical perspective rather than macro.

The Norwegian Krone had a quiet, rangebound week against most G10 currencies, this week’s focus will be the Deposit Rate announcement from Norges Bank. Governor Olsen is not expected to do something drastic this early on in the year. We will follow the press conference closely on Thursday as he has warned and hinted previously that the market perhaps is not taking the possibility of a rate hike before 2022 into consideration.
Although it is not something the market expects will impact the DKKEUR peg, Denmark has its first impeachment trial in almost three decades which may have wider political implications for the country.

A difficult start to the New Year

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Good Morning, the optimism that surrounded the start of the New Year quickly evaporated last week as the spread of COVID-19 worldwide started to concern the currency markets.

In the UK records of the worst type were broken as hospitalisations and mortalities both hit new records.

With another lockdown now enacted  London’s mayor, Sadiq Khan has declared a “major incident”. Concerns are now growing for the damage that the economy will suffer. With the mass vaccination programme currently underway, there is at least some light at the end of the tunnel, however tighter lockdown restrictions are being considered. Compared to mainland Europe, the UK is some way ahead of getting the population inoculated. This should help give the UK economy a head start compared to Europe when the recovery hopefully starts later this year and is lifting sterling against the euro.

Markets were also optimistic that Donald Trump would concede gracefully and leave the White House in an orderly manner. Instead, the world witnessed the turmoil in Washington, DC, last week. The market now wonders if there are any more twists in the tail to come and is becoming more risk-off. However, as much as Donald Trump dislikes the outcome, Joe Biden will be the next President, and the Democrats will control both houses making legislation easier to pass. After disappointing employment data showed that the US economy had lost another 140,000 in December, the incoming President knows that he faces plenty of economic challenges. He also has the tricky task of uniting a deeply divided nation.

UK

Sterling suffered slightly last week as Boris Johnson instigated the third lockdown on the country. Questions were also raised concerning the efficacy of the developed vaccines against the newer strains of the virus. Of course, countering the doom is the expansion of the vaccination programme, which may enable the UK to swing out of the lockdown cycle faster than its competitors. Brexit has finally dropped off the front pages, and so far, there appears to have been a smooth transition, but the market will remain cautious of sterling to see whether there is a delayed impact. This week we have another quiet week on economic data with the highlight being November’s monthly Gross Domestic Product which is released on Friday alongside Industrial Production data. This afternoon Silvana Tenreyro, from the Bank of England, will deliver a speech titled “Let’s talk about negative interest rates” which may spook the markets and pressure Andrew Bailey to respond.

Euro

Europe is facing the same problems as the rest of the world as COVID-19 case continue to increase, and containment measures grow in response. The euro has been under selling pressure as the vaccine campaign appears to have started slowly epitomised by France vaccinating less than 150,000 compared to around 2,000,000 in the UK. With the more contagious strain of the virus now reaching into the continent, a third wave is becoming a distinct possibility. After a busy start to the year on data, this week is quieter with only Eurozone Industrial Production for November due out on Wednesday. The ECB’s Christine Lagarde is speaking both this afternoon and Wednesday and the minutes from the last ECB meeting are released on Thursday. We will also be watching the German CDU convention choosing Angela Merkel’s replacement as their leader.

US

After the maelstrom of last week, we will be hoping for a quieter time this week as Donald Trump enters the last days of his Presidency. Last week, US interest rates started to rise as the Biden administration is expected to introduce reflationary policies, and a change in risk sentiment has begun to be felt. As yields rise, the dollar becomes more attractive, and over the last week, sterling eased and has opened this morning at $1.3500. A relatively quiet week for data this week mainly focusing on what the US consumer has been doing. December Consumer Price (CPI) figures are out on Wednesday, and Retail Sales will be released on Thursday which is expected to disappoint. Google mobility data suggests people traffic in retail areas has been slow which infers less gift buying over the Christmas period. Several Federal Reserve members are speaking this week including Jerome Powell, Chairman of the Federal Reserve, on Thursday.

Scandi

The Swedish krona was rangebound last week and the shorter working week meant that liquidity was very thin. This week is the first official week back at work, and new COVID-19 related restrictions have come into force, including face masks during rush hour on public transport and fines for anyone hosting a private event of more than eight people. The week kicks off with Swedish Housing Figures and the Budget Balance. Later in the week on Thursday we will get the Unemployment Rate, and on Friday the CPI figures are released. Inflation is expected to come in at 0.6% on a month-on-month basis.

The Norwegian krone has started the year strongly, which may be more technical than macro, driven. This is because Norway’s two major industries (oil and fishing) are still suffering from lockdowns and the absence of leisure and business travel. This week we start with the CPI figure out today and GDP figure tomorrow. The latter is expected to have contracted 1.6% on a month-on-month basis. The week finishes off with the trade balance being reported.

New beginnings for Sterling

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

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

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

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

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

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

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

A volatile week for sterling?

Posted on by Wordpress Admin

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

President Trump has all but conceded defeat to Joe Biden.

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

GBP

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

Euro

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

US

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

Scandi

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

ROW

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

Glory days for Joe Biden

Posted on by Wordpress Admin

Good Morning, as was widely predicted, the US election dominated the markets for the whole of last week, and the continued fallout from it is expected to carry on driving sentiment for some time to come.

Currencies remain volatile and until the shape of the Biden Presidency becomes clear, and the seriousness of Trump’s legal challenge emerges, we are in for a further period of instability.

The dollar eased quite sharply against sterling, the euro, the yen and in particular the high beta krone, which saw an appreciation of nearly 4%, as risk appetite returned. Even if Donald Trump continues to contest the election, markets seem confident that Joe Biden will prevail and they have high hopes for the US to slowly return to the status quo of a less protectionist country which is, of course, a positive for global trade.

Looking ahead, we are going to carry on being overshadowed by the same stories as in the recent past, in what seems like another Groundhog week with the Presidency, COVID-19, and Brexit being the drivers. The Biden blue wave, that many were predicting, did not quite materialise, and sadly there is a deadly second wave of COVID-19 sweeping through the UK, Europe, and the US. With an increasing number of countries entering lockdown, economies will carry on suffering not least the UK. The last worry for the markets is Brexit, where most investors are now more hopeful of a last-minute deal being the outcome. The consensus view is that with the Brexit negotiations now entering what surely must be the end game, the hit that our joint economies are currently taking will intensify pressure on the negotiators to reach a compromise.

UK

Sterling gained ground as the dollar weakened last week, ending the week nearly 2 and a half cents better, at $1.3150. This move was almost entirely dollar-driven as investors turned a blind eye to the UK’s domestic challenges. Against the euro, sterling also strengthened slightly to sit around €1.1100, where it has opened this morning. The ongoing Brexit talks are now nearing a conclusion and continue this week in London with a semblance of a deal being hoped for in the near future. With both sides facing ongoing COVID-19 induced recessions, an eventual deal is now broadly expected as the damage both politically and economically of a no-deal is too dangerous to contemplate. Data wise, this week we have the latest employment data on Tuesday, but it is unlikely that too much will be read into these numbers as the furlough scheme, which distorts the numbers, has been extended. Later in the week, on Thursday, the most recent Industrial and Manufacturing Production numbers are released along with preliminary third-quarter Gross Domestic Product (GDP). Bank of England Governor Andrew Bailey is also speaking today and Thursday, again we will be listening out for any hints on the likelihood of negative interest rates.

Euro

The euro, as did most currencies, appreciated sharply against the dollar last week as investors warmed to the idea of a less protectionist and confrontational post-Trump world and have been trading up near the €1.1900 level. With the ongoing second wave shutting many eurozone economies, the rise is likely to be relatively short-lived and probably capped around the €1.2000 level, which has recently been the trigger level for the ECB to start to talk it down.  On the data front, the week ahead sees the release of the November Eurozone Sentix survey and the German ZEW economic sentiment survey on Tuesday, then Eurozone GDP on Friday. Towards the end of the week, the ECB is holding an economic forum where all the major central bankers are speaking, including Christine Lagarde (ECB), Andrew Bailey (BoE) and Jerome Powell (Fed).

US

President-elect Joe Biden gave his victory speech in Wilmington on Saturday and now all eyes will be on President Trump’s, who spent the weekend seemingly playing golf. Whatever the outcome, the country remains deeply divided as almost certainly does the Senate which will hamper Biden’s ability to govern. Looking beyond politics, last Friday’s US jobs report almost got lost amongst all the focus on the election, but the October figures were strong with 680,000 jobs created, although the overall number is still 10 million less than February. With COVID-19 continuing unabated in the US, with cases running at over 120,000 a day, there is a growing risk of local and state lockdowns returning which will cause another rise in unemployment. As on this side of the Atlantic, there is still a reluctance for businesses and consumers to return to normal and this knock-on effect in confidence will lead to worsening employment numbers. America has a public holiday for Veterans Day on Wednesday and there is very little data out this week, apart from October’s Consumer Price Index (CPI) on Thursday which is announced at the same time as the weekly jobs report.

Scandi

The return of risk appetite did assist beta currencies, as expected, in their bull run towards the end of last week. EURSEK is now back trading at levels last seen in mid-august and a so-called ‘Santa Claus’ rally may even strengthen the krona further. As mentioned in last week’s update, December is historically a krona positive month. This week we are watching out for the Consumer Price Index (CPI) out on Thursday. It is not expected to have changed significantly and with this figure being the only important data release this week, it is more likely that the general atmosphere on the markets will impact the krona’s movements.
The Krone, on the other hand, suffered at the beginning of last week but managed to regain ground towards the end of it. This week we are watching the CPI figure out on Tuesday which is neither expected to have changed on a month-by-month nor on a year-by-year basis. The most interesting set of data to be released from Norway this week is the GDP figure which is expected to finally show some growth on a quarter-by-quarter basis, growing from -6.3% to 5.2%.
South of the border, a mutated version of COVID-19 has been discovered on a mink farm in Denmark. Although it is too early to say whether this developing story, it may cause Danmarks Nationalbank to take action, we will keep a close eye on those developments since it may impact the wider Nordic region with tighter restrictions or complete closures.

ROW

As with all G10 currencies, the yen benefited from the return of risk appetite last week and is now trading comfortably under 104 against the dollar, however, the trade-weighted yen is still some 4% off its March highs against its closest neighbours. As expected, the hypersensitive aussie gained as risk sentiment improved and with no data or speakers scheduled it will remain driven by external factors as will the kiwi. The Canadian dollar rose on the back of the election as well as better than expected unemployment and again, like all the G10, will remain driven by the fallout from the US Presidential election.