GBP

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.

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

The can is kicked down the road again

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Good morning, Last week volatility increased sharply in sterling related markets as once again Brexit dominated the headlines and airwaves. With this weekend’s talks spilling over into this week, a renewed sense of optimism returned. Sterling has bounced strongly off its lows as a no-deal outcome seemingly has receded slightly.

After a week where a no-deal loomed, we now have another two possible outcomes, either a deal at the death or a possible extension beyond the 31st December. With so many imponderables and personalities at play, the rumour mill will no doubt be working over-time. Sterling will remain highly volatile, and thin markets will heighten it as we enter into the Christmas period.

Away from Brexit, our focus will be on Central banks over the next few days. Last week the ECB increased the length of its monetary accommodation into the first half of 2022. By doing this, they are hoping that their policies can act as a bridge till vaccines have restored some sense of normality to the Eurozone economies. This coming Wednesday, we will get to see how the Federal Reserve is planning to react to the rising tide of both COVID-19 and unemployment in the United States. On Thursday it will be the Bank of England’s last chance to change policy before the year-end.

UK

After the weekend’s talks seemingly ended in a score draw, we enter the last full week of trading still unsure of the trade negotiation outcome. After a weekend where sterling moved by over 1% back to £1.3325 and thin trading in prospect, we again expect to see highly volatile markets. Away from Brexit, we have quite a busy data docket. The latest Unemployment data will be released tomorrow, Inflation figures for November on Wednesday and Retail Sales on Friday. The most important event will be on Thursday when the Bank of England will hold its last regular policy meeting of the year. This meeting falls just a fortnight ahead of the year-end when we could still find the UK ending its transition out of the European Union without a future trade deal.  The BoE is likely to leave both rates and QE (Quantitative Easing policies) as they are this month. Governor Andrew Bailey has hinted at a move to negative interest rates, but this is unlikely. If the BoE decides to move rates into negative territory sterling would decline sharply.

Euro

The euro is of course affected by the Brexit uncertainty every bit as much as sterling and has opened this morning at €1.2125. Over the weekend Germany announced a hard lockdown over the Christmas period and this may cap and advance by the euro. Derivative traders are also taking a negative view of the currency as the premium for puts (the right to sell euros) has been increasing. The derivative moves may be traders buying protection for year-end as demand for dollars increases. Away from waiting on Brexit headlines, we will be watching October Industrial Production today and then the first look at the December PMIs for the Eurozone, on Wednesday. The recent lockdowns have hurt the service sector more than most and analysts aren’t expecting too strong a rebound.

US

After last week’s weaker US payrolls number there does, at last, appear to have been progress with the discussions over a new $916bn stimulus package. Whilst these negotiations drag on there is at least the good news that a vaccination program is starting across the United States. With 2021 rapidly approaching there is potential for disruptions to the market caused by year-end rebalancing. With US stock markets having risen sharply, there could well be a demand for dollars as banks need to balance their books. Away from the repercussions of Brexit, we will be watching out for the Federal Open Market Committee meeting on Wednesday. A dovish message is expected from this meeting but with no great changes to its policy. On the US data docket, we will be keeping an eye on November Industrial Production on Tuesday, Retail Sales on Wednesday and Thursday will see the weekly release of unemployment data.

Scandi

The Swedish Krona had another volatile week against most G10 currencies. This was mainly caused by Riksbank comments about the possibility of negative interest rates in the future should they be deemed needed. It remains the best performing currency of this year within that group, and the macro data from last week was encouraging too. Inflation remains stubbornly low, but the Riksbank does not seem too worried as it tries to put out other more urgent fires. This week is relatively thin from a data perspective with the unemployment rate being the only important set of data out on Thursday. Loyal readers of our report are fully aware that December is normally SEK positive, and data compiled demonstrates that SEK has strengthened on average 1.1% between 11-Dec and 31-Dec since 2009. In other words, we have entered what should be a SEK bullish period.

Over in Norway, it looks as if the Norwegian Krone is going to claim the opposite title and be crowned the worst performing G10 currency of the year. Apart from oil, Norway’s economy is mainly driven by its high-end fishing produce. With lockdowns and restaurant closures, the industry has suffered throughout 2020. Despite that, the market is not looking for the Norges Bank to deliver any surprises on Thursday when the Deposit rate is set. It is expected to stay at 0.00%. We will also closely monitor the unemployment rate, which is out the day after.

ROW

The aussie dollar looks set to continue benefitting from the recent rise in Iron Ore prices as well as the weaker dollar, but like all beta currencies, it may suffer from the fallout from Brexit as well as its ongoing spat with China with the Australian wine industry now targeted. We will be watching its close neighbour, the kiwi when third-quarter growth data is released this week where the consensus is for a strong rebound. Their cousin, the Canadian dollar, should continue to benefit from a global rebound as Oil recovers and their inflation figures are released on Wednesday. The Swiss franc could see some volatility as the ramifications of any new Brexit negotiations are felt. The Swiss National Bank will as always will be watching from the sidelines and will not be afraid to intervene to maintain an orderly market.

A volatile week for sterling?

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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.

Will we have an early present of a Brexit deal?

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Good Afternoon, the end of last week saw the Thanksgiving holiday in the US, which brought about a quiet end of the week in FX markets. To us, this also marks the start of the festive season, with the new (and some might say unwelcome) tradition of Black Friday and Cyber Monday, as a precursor to entering the period of advent tomorrow.

The main focus on the markets though, won’t be opening the first window of our advent calendars, but the progress of Brexit talks, with time now getting very tight for a deal. There were some hopeful headlines over the weekend, but the ebb and flow of rumours coming from both sides over the coming days will be the main driver of currency markets, and the pound in particular. We appear to be making progress over fisheries, but both sides have been relatively tight-lipped as face to face talks have commenced this morning.
 
Aside from the short-term Brexit focus, any COVID-19 related news and further vaccine updates will have an impact on global risk appetite, and we have a fairly busy week on the data docket. The Reserve bank of Australia (RBA) latest rate announcement is released overnight tonight, a host of central bankers are speaking throughout the week and a raft of US data towards the back end of the week, culminating in the latest non-farm payroll numbers being released on Friday.

GBP

Last week’s updated forecasts from the Office for Budget Responsibility (OBR) offered the most detailed estimate yet of the impact on public finances and the economy amidst the COVID-19 pandemic. An expected Gross Domestic Product (GDP) showed a decline of 11.3% and a public sector deficit of £394bln for 2020/21. Despite this deficit, Chancellor Sunak raised spending for the next year as he underlined the immediate priority to combat the pandemic and preserve jobs. Sterling did end the week lower, penalised for the continued ongoing differences in Brexit negotiations. With face-to-face talks set to resume as we enter what has been described as a crucial week, markets remain cautiously optimistic about the likelihood of a deal.

EUR
The euro closed its strongest week for a while as EUR/USD is in touching distance of the psychologically significant $1.20 level. The single currency shrugged off sub-par data and has been edging higher as news of COVID-19 vaccines and central bank stimulus raises hopes of an economic recovery next year. A busy week ahead for data statistics as inflation, employment and retail sales for Germany and Europe as a whole are due for release. ECB President Lagarde and several of her colleagues are also scheduled to speak this week.

USD
US economic data has been a mixed bag recently, however, on balance it suggests that activity has slowed overall. US November PMI data unexpectedly rose but there was a big increase in weekly jobless claims. Thanksgiving holidays cut the week short for US participants but the dollar is in for another busy week as Fed Chair Powell and Treasury Secretary Mnuchin will testify to Congress about the effectiveness of policies designed to offset the economic impact of the virus. With the two not exactly seeing eye-to-eye recently, this could be an interesting one. Labour market data and US non-farm payrolls are the other highlights.

Scandi 

SEK initially had a strong week touching new highs for 2020 against the EUR but the normally mundane and calm Riksbank Governor took everyone by surprise on Thursday. As expected, the repo rate was left unchanged, but it was announced that the Riksbank was going to expand its asset purchase programme by SEK200bn to a total of SEK700bn. The market had expected an expansion of SEK100bn only. SEK weakened immediately and was hit with further comments about the possibility of a return to negative interest rates and that rates would at least be at today’s level for years to come. It is worth noting that two Riksbank voting council members did not vote in favour of this expansion. Growth estimates for 2021 were reduced too. We are now officially entering into what is historically and normally SEK’s strongest month and it will be interesting to see what kind of appreciation will be acceptable for the Riksbank. This week is very calm and the only set of data we will pay attention to is the Swedbank PMI Manufacturing survey on Tuesday. It is expected to come in at 58.0.
NOK ended the month of November on a high note gaining ground against all G10 currencies and becoming the top performer. This week is very calm for NOK too with Tuesday being the only major date when the DNB PMI Manufacturing survey is released. The market is expecting a reading of 53.0, i.e. an expansion.

Time for a Brexit breakthrough?

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Good Morning, last week the markets switched their attention away from the recent US election and started reacting to COVID-19 derived headlines. Risk sentiment see-sawed during the week and will continue to be the primary driver of currency moves.

Initially, the stock markets went to the moon on the news that Pfizer had developed a COVID-19 vaccine that was at least 90% effective. As stock markets rallied risk sentiment improved and beta currencies such as the pound rallied. As the week progressed the market mood soured as the realisation hit that there is a likelihood of more economic setbacks before the vaccine can make a difference. Europe now has widespread lockdowns as the second wave of the virus rampages through the continent but more troubling for the markets is its spread in the United States. Whilst Donald Trump has been in charge, the economy has been kept running but the market’s worry is whether Joe Biden, if he becomes President, will implement widespread lockdowns.

In the coming week, we expect currencies to remain mainly event-driven with the same three stories, as in recent times, dominating. Firstly, the uncertain political backdrop in the US is still rumbling away in the background, with allegations of fraud, legal cases and recounts continuing. Secondly, with American COVID-19 cases increasing exponentially, the fear of post-Thanksgiving lockdowns in the US is starting to permeate through into the markets. Finally, after another week of seemingly little progress, there is a sense that we may, at last, be approaching the end game in the Brexit trade deal negotiations as they increasingly becoming time-critical. With plenty of unpredictable themes set to drive the markets this week, we will be here to help, giving you insights on how this could impact your currency requirements and how we can mitigate these risks.

UK

Sterling traded in quite a narrow range last week, finishing at $1.3150 against the dollar, after touching a high of $1.3250 and at just above €1.1100 against the euro. As we enter the second week of lockdown in the UK the infection numbers seem to be dropping and attention is starting to switch to Number 10, where Boris Johnson has been forced to self-isolate. After two hardline Brexiters, Dominic Cummings and Lee Cain left last week there is an increased sense that the land is being prepared for a relatively soft Brexit deal. Time is really running out now to get any free trade agreement ratified by both parliaments and the feeling is that a deal needs to be agreed in the next couple of weeks, if not sooner. As always with Brexit, it is best not to rule out a surprise and we will, of course, be watching the headlines closely. There is not a lot of data being released in the coming week apart from October’s Consumer Price Index on Wednesday and October’s Retail sales on Friday. The Bank of England is also busy with Andrew Bailey, Dave Ramsden and Andy Haldane all set to speak.

Euro

The market shrugged off some dire economic figures from the Eurozone, allowing the euro to have a relatively good week, touching at one point a two-month high of €1.1920. Buyers have been encouraged as lockdowns seem to be leading to a flattening of coronavirus curve. If this flattening continues the opportunities for opening of economies in the run-up to Christmas will increase and Europe’s economy, and the euro, will benefit whilst the US flounders. As with sterling, the euro will benefit from any Brexit breakthrough but, as we have seen recently, once it approaches $1.2000 the ECB will verbally intervene to try and cap any advance. The EU virtual summit on Thursday could be the platform for an announcement regarding Brexit. Plenty of speakers from the ECB this week, with Christine Lagarde scheduled to speak every day apart from Wednesday! There is not a lot on the Eurozone data docket this week with just October’s Consumer Price Index on Wednesday and Consumer Confidence on Friday.

US

Donald Trump has remained relatively quiet in the last week, however, he has still yet to concede defeat. Whilst the media and most of the market are assuming that Joe Biden will be the next President, it is still not finalised, and States have until December 8th to resolve disputes. Away from politics, the dollar will again be driven by switches in risk sentiment most likely caused by COVID-19 derived headlines. New York and Chicago are taking steps to try and halt the spread of the virus, whilst elsewhere it is verging on being out of control with patients in the Midwest being unable to find hospital beds. With Donald Trump unlikely to impose restrictions it will be down to local governors to decide but many consumers will have made their mind up and will stay at home. There are plenty of speakers from the Fed this week, who are likely to reiterate the same mantra of “whatever it takes” whilst hinting at further intervention if necessary.  A relatively quiet week on data with just October’s Retail Sales, released on Monday, and the Thursday’s employment numbers catching the eye.

Scandi

The Swedish krona had a roller-coaster week, initially strengthening against all major currencies and then weakening rather spectacularly on Friday. What started the sell-off on Friday was a report from the Riksbank saying that annual growth from the Nordic countries’ largest economy was lower than initially publicised which was followed later in the day by the government of Sweden imposing new COVID-19 related restrictions. Restaurants, bars, and nightclubs must now shut at 22:00 until the end of March, thus affecting the crucial festive period. This week, we will watch for the unemployment rate out on Thursday
The Norwegian krone also had a volatile week, after initially strengthening but then lost ground towards the end of the week and practically finished unchanged. On Tuesday, we will get the consumer confidence indicator which will tell us whether we can expect festive cheer from the retail industry post-Christmas, or not. We will also get the GDP figure on Tuesday.

Over in Denmark, the decision to kill 17m minks in the country was taken by the government after a mutation of the virus was found in them. Denmark was until last week Europe’s largest fur producer and the industry turned over almost $1bln 2018-2019. Experts predict that 1,000 farms will now close permanently affecting 6,000 jobs. We will monitor any statements from the Danmarks Nationalbank and the finance minister Nicolai Wammen closely this week.

ROW

The Australian dollar had a relatively quiet week last week as the country seems to have got the second wave of Covid under control we will be watching closely for signs of a further deterioration of their relationship with China. This week the Royal Bank of Australia’s Governor Philip Lowe is speaking, and we will be keeping an eye out for the unemployment figures on Thursday. The yen traded at just above 103 on the vaccine news last week but as the week wore on its own COVID-19 spike started to concern markets and the currency eased. The Canadian dollar was driven by movements in oil and as West Texas Intermediate (WTI) turned south the currency followed. With no economic data to drive the loonie this week, it will again most likely track the oil market.