USD

Financial markets get the jitters

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A relatively quiet week sparked into life last Thursday afternoon after the release of a slightly higher than expected Consumer Price Index from the US. At 7.5%, the index is at its highest level for over four decades, and worryingly the core figure is also rising steadily.

In response, yields on US bonds rose sharply, as did interest rate projections in the derivative markets. James Bullard, from the St. Louis Federal Reserve, reacted by suggesting that the cost of borrowing should rise by 1% between now and July and even suggested that the Federal Reserve could hold an emergency meeting and raise rates. This reaction smelt slightly of panic to the markets, and as would be expected, stock markets started to slide, pushing the dollar higher as investors searched for safer assets. Sterling fared better than the euro as expectations are that the Bank of England will again raise rates in March whilst the European Central Bank council members started to dial back their hawkishness.

With a quiet week ahead, at least for economic data, elsewhere attention will switch to the UK this week. With the next meeting of the Bank of England looming, the release of the UK’s inflation indexes this coming Wednesday will be studied with interest. With the increases in energy prices starting to come through into the numbers, expectations are for another jump. Elsewhere geopolitics will continue to unsettle the markets, with President Putin becoming increasingly belligerent over his intentions towards Ukraine whilst President Biden back peddles. Over the weekend tensions escalated with countries, including the UK, advising its citizens to leave Ukraine as fears of a Russian invasion grew. Elsewhere Brexit negotiations still rumble on, as do Boris Johnson’s domestic problems; however, a quieter week on that front with parliament on recess may be on the cards.

GBP
After last weeks inflation shock in the US, the UK takes centre stage this week with the release of both employment and inflation data. First up is the unemployment data, released tomorrow, which is expected to edge lower again to virtually pre virus levels. With markets now expecting further moves upwards in Base Rate at the Bank of England’s next meeting followed by another one in May Wednesday’s Consumer Price Index will be of some importance. Most analysts are looking for a slight drop in January’s headline figure but for it to bounce back and peak in April. If there is no apparent easing in the figure sterling could make further gains in particular against the euro. Also scheduled for release, but not quite as important as the CPI figure, are January’s Retail Sales which are published on Friday.

EUR
The euro was buffeted by the storms that crossed the Atlantic following the release of the US Consumer Price Index and the responses from the mouthpieces of the Federal Reserve. Christine Lagarde’s attempts to soften her hawkish rhetoric of the previous week unsettled the markets, as did the hawkish comments from the new President of the Bundesbank, which highlighted the frictions inherent in the European Central Bank’s council. Contradictory speeches were also delivered by Phillip Lane and Isabel Schnabel leaving the ECB in a catch 22 situation. As well as its internal problems, investors are also nervous about European assets as the temperature continues to rise between NATO and Russia on Europe’s Eastern border, keeping a lid on any advances by the euro. The only data of note due this week was out tomorrow when Employment and Gross Domestic Product for the Eurozone published and the ZEW sentiment surveys for the zone and its constituent countries. However, there are some notable speakers who will have a chance to give more clarity to the ECB’s position. The first opportunity falls to Christine Lagarde today and then Isabel Schnabel has a chance to reiterate her hawkish credentials and Phillip Lane his dovish ones on Thursday.

USD
With minimal top tier data release out of the US this week, the dollar’s direction is likely to be driven by the continuing fall out from last week’s Consumer Price Index. Financial markets are looking for now looking for a rise in rates at the next Federal Reserve meeting on 16th March. The derivative markets are suggesting that there is a better than 50/50 chance of a .5% rise to be followed by at least another four hikes through the rest of the year. However, there is another set of inflation figures released before that meeting and the markets and consequently, the dollar may have got ahead of itself. On Wednesday Retail Sales will be watched for any further signs of weakness that they have shown recently but with the effects of the Omicron variant still evident, some softness may be expected in them.  The only other top tier figures scheduled for release are for Industrial Production, also on Wednesday, and the weekly jobless total on Thursday. Away from data, the market will be studying the minutes from the last FOMC meeting, which are released on Wednesday evening, to see how concerned the Fed really is over inflation.

Scandinavia
Despite a somewhat hawkish Riksbank, the market expected even stronger language from Governor Ingves making the Swedish krona weaken further. It reached levels last seen in early 2020 on Thursday. Focus this week will be on the situation in Ukraine as any talk about military action could potentially have a negative impact on beta currencies such as the krona. On Friday, the latest CPI figures are released and will be closely monitored by market participants. Over in Norway, the country is preparing for ex-Prime Minister and current Head of NATO, Jens Stoltenberg to take over the helm at Norges Bank. Given the previous political affiliation of Herr Stoltenberg, some questions have been raised in regards to his fitness for the role. This week the latest GDP figure is released on Wednesday.

Will dollar continue to dominate?

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

Dollar dominates

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

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

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

UK

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

EUR

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

US

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

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

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

Scandi

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

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

A busy week ahead

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Last week, the dollar put in its worst performance this year after the Federal Reserve meeting was perceived as less hawkish than analysts predicted. In actual fact, the Fed did say that “progress” was being made towards normalisation, but in a relatively quiet market, traders ignored the subtleties of language and decided to sell dollars.

The change in the market’s mood coincided with month-end, and institutions reversing their dollar positions to book their profits exaggerated the move down.
Along with most of the G10 currencies, the pound had its best week for some time and managed to gain nearly two cents to finish the month near the top of its trading range. The reluctance of the Fed to start tightening policy became more understandable after the release of second-quarter Gross Domestic Product showed that the economy was not bouncing back quite as strongly as was previously thought. Indeed, the annualised Core Personal Consumption expenditure, one of the Fed’s chosen indicators, was lower than the consensus had forecast, justifying the opinion that inflation is a product of disrupted supply chains and is transitory.

There are two significant events on the currency market’s horizon dominating traders’ thoughts and actions this week the monthly meeting of the Bank of England’s Monetary Policy Committee (MPC) and a complete set of US employment reports, including the all-encompassing Non-Farm Payroll this coming Friday. With the Federal Reserve taking a patient stance over monetary policy, neither dovish nor hawkish, it will be a major surprise if the BoE chooses a different path. The chances are that sterling will ignore the BoE meeting unless there is a marked change in tone and tread water until the release of the Non-Farm payroll data on Friday, which is expected to show strong growth. Away from the macroeconomic data releases, we will be monitoring the Brexit-related problems in Northern Ireland and the spread of Covid in the UK and, as importantly, across Europe and the US.

UK

With the direction of Covid figures still unclear in the UK, it is unlikely that the Bank of England will dramatically change tack on its policies after Thursday’s MPC meeting. Although there are at least two hawks on the committee, judging by recent speeches, it still appears too early in the UK’s economic recovery for a majority of members to push for any substantial change of policy. However, according to press reports over the weekend, they may alter the sequencing of any future tightening. Unless the Bank is openly more dovish than after its last meeting, it is unlikely that sterling will react too dramatically. The Bank of England is also scheduled to unveil its updated quarterly forecasts on Thursday, which are expected to continue cautiously optimistic, but they may contain a sharp upward revision to their inflation forecasts. Ahead of the meeting, Markit will release their Purchasing Managers Index (PMI) for Manufacturing this morning and on Wednesday final composite and Services (PMIs) for July.

Euro

A very quiet week and possibly month looks in prospect for the euro, with many traders choosing a sunbed over a dealing desk as August arrives. With the main events occurring away from the continent and little economic data to be published, the euro’s direction will be led by primarily the dollar. Despite a solid performance that saw the single currency gain a cent against the dollar last week, it slipped against sterling after mixed European data with concerns over the effect of the Delta variant remaining to concern investors. As in the rest of the world, the Eurozone will see the release of Markit’s PMI’s starting this morning with Manufacturing followed by the Services and Composite sectors on Wednesday, which also has June’s Retail Sales scheduled for release. There is then a lull till Friday when Germany’s Industrial Output for June is reported

US

After a series of mixed data reports in the US, traders will be studying this week’s employment details, particularly Friday’s non-farm payroll intently. With the Fed willing to turn a blind eye to inflation and reluctant to pull the trigger on tightening until further progress towards full employment is made, this monthly report has assumed more importance than usual. There are still six million fewer Americans in work than before the pandemic; however, the US has an enviable record in creating jobs. If the actual number comes close to the one million new jobs created figure that some are forecasting, the dollar will appreciate sharply as expectations of an early round of tightening will resurface. The US labor department will also release its weekly jobless total on Thursday, and ADP will publish its predominantly white-collar employment report on Wednesday. As elsewhere, we start the week with Markit and ISM’s Manufacturing PMI’s this afternoon. This data is followed by June’s Factory Orders tomorrow and further PMI’s, including July’s final Composite index the day after. There are several speakers from the Federal Reserve this week, including Richard Clarida on Wednesday and Christopher Waller the following day.

Scandi

The Swedish krona finished the month unchanged against most G10 currencies. August is historically speaking a krona positive month, and seasonality (with people coming back from their holiday and schools reopening) plays a part too. This week kicks off with the PMI Manufacturing data, Wednesday with the PMI Services data, and on Friday, the Budget Balance is reported.

Meanwhile in Norway, people are preparing for the General Election in September, and politics may start to influence the krone. August has a mixed track record for the krone, whose value very much depends on the consumption of oil and people traveling. This week sees no major data releases but for the PMI Manufacturing data out today.

Currency markets look to Federal Reserve

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Currencies continued to trade in the familiar tight ranges for most of last week as the markets awaited the US Consumer Price Index (CPI) for May, which, when published, reported the highest core inflation figure for 30 years.

Investors remain concerned with the inflationary pressures that appear to be growing as the developed world recovers from the pandemic and how quickly central banks will stifle uptick by tightening policy.

Initially, the dollar rallied before falling back and then rallying again into the close on Friday as the US Bond market belatedly reacted to the CPI data and yields increased. The pound was buffeted by these outside influences and has opened this morning a little easier than last week at $1.4100.

Another potentially busy week lies ahead with key data from the UK and the monthly Federal Reserve Open Market Committee (FOMC) meeting. After last week’s surprisingly high inflation report from the US, pressure has increased on the Federal Reserve to tighten policy. The markets will hang onto every word Jerome Powell says at the press conference following the meeting for any hints to a change in policy. There is an avalanche of reports from the Office for National Statistics (ONS) over the next few days for the pound to digest in the UK. In the background, as so often, there is an ongoing Brexit dispute with the EU rumbling on. The so-called “sausage wars “seem likely to continue into this week as the tricky issues of the Northern Ireland Protocol remained unresolved. Hopefully, the Euro 2020 tournament will be less contentious!

UK

The pound had a relatively quiet week last week but may become more vulnerable this week as the final easing of restrictions on the 21st June looks likely to be delayed and tensions between the EU and the UK show little sign of easing. However, as has often been seen, the EU likes to take negotiations to the last minute. So far, the impact of the dispute over the Northern Ireland Protocol has been muted, with sterling virtually unchanged against the euro in the last week at €1.1650. We have a data-packed week in front of us starting tomorrow morning when the ONS will release Average Earnings and hopefully Employment figures that are continuing to improve. On Wednesday, it’s the UK’s turn for CPI, which is likely to show a rise towards the 2% level whilst not rising as quickly as the US. The week closes out with May’s Retail Sales which several analysts expect to disappoint after April’s sharp rise. We will be listening to Bank of England Governor Andrew Bailey when he speaks tomorrow afternoon for any comments on the morning’s unemployment data.

Euro

As expected, at their monthly meeting last week, the European Central Bank played down any chances of tightening policy soon. Whilst not unexpected, the market turned against the euro, and some quite heavy selling occurred, which pushed the single currency to below $1.2100 against the dollar. It remained against sterling, but both currencies remain vulnerable to any breakdown in the ongoing talks over the trade issues surrounding Northern Ireland. An extremely quiet week appears to lay ahead with mainly second-string data on the docket apart from Eurozone Industrial Production this morning, German CPI tomorrow, and lastly, May’s CPI for the Eurozone on Thursday.

US

The highlight of the week for financial markets, generally not least the currency markets, will be Wednesday’s FOMC meeting. However, with the markets entering summer mode and volatility decreasing, it is unlikely that the Fed will want to rock the boat by discussing tapering; indeed, it is most likely that Jerome Powell will do all he can to avoid the subject at the press conference. Only two reports stand out on the data docket: May’s Retail Sales and Industrial Production, both of which are released tomorrow. The retail sales data may unsettle the markets as they are likely to be distorted by disruptions to the car market caused by the shortage of semiconductors. Away from financial data, President Biden will continue his travels this side of the Atlantic with what should be interesting meetings with President Putin from Russia and his Turkish counterpart President Erdogan.

Scandi

Even though macro-data came in worse than expected last week, the Swedish krona kept on strengthening confirming what many analysts had written earlier about its seasonal performance. We are now in official krona strong ground that usually lasts until Midsummer and sometimes until the last Riksbank meeting in July which is the last one until the long summer holiday ending in mid-August. This week sees no major data releases which means technical and seasonal traders may outnumber day traders looking for quick profits.

The macro data from Norway also provided some sombre readings last week, in particular the latest CPI figure which was much lower than expected. It prompted the financial press to seriously question whether a rate hike from Norges Bank Governor Olsen will come in September, some going as far as saying that the Norwegian krone now has become a two-way bet. Volatility against most G10 crosses is expected to remain high throughout the week until the Deposit Rate announcement on Thursday. The market expects Governor Olsen to stay put but will closely listen to what he has to say regarding last week’s low inflation figures during the press conference.

Is the US recovery stalling

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After a week of anticipation, the non-farm payroll report came in at a slightly disappointing level and encouraged sellers of the dollar to reappear. With employment rising at a lower than expected 559,000, the pace of the recovery in the US and the subsequent tightening of economic policy is starting to be questioned by investors.

However, on closer analysis, the problem is not a lack of jobs but a reluctance to return to the workforce.

This hesitancy by workers is leading to a squeeze on wages, although there are nearly 8 million fewer people employed than at the start of the pandemic. This combination of factors presents the Federal Reserve and the currency markets with a problem. The market perceives that the Federal Reserve should be starting to tighten policy to control inflation but is boxed in until employment drops.

Looking ahead into this week, events are likely to be dominated by worries over a possible surge in Covid cases in the UK caused by new variants, inflation concerns, and the monthly meeting of the European Central Bank on Thursday. With new variants occurring and cases increasing, there have been doubts cast over the further lifting of restrictions on June 21st. Still, with most of the country’s businesses open, the damage caused by delay is more likely to be psychological and damage confidence. However, with travel restrictions increasing and the chances of a vacation abroad receding, the euro may become increasingly vulnerable as the southern European countries miss out for a second summer in a row on the UK holidaymaker boosting the local economies. The G7 summit meeting also takes place this week at Carbis Bay in Cornwall to discuss the world’s economic fightback.

UK

The pound flew the flag for the G10 currencies last week against the strengthening dollar and has opened this morning at $1.4140 whilst staying relatively strong against the euro at €1.1620. However, with the government’s Matt Hancock saying yesterday that they were “absolutely open” to delaying the next stage on the roadmap to normality and concerns over the efficiency of the vaccines, worries will start to mount about whether consumer confidence has returned too early. If these fears grow, sterling could well begin to drift lower as the concerns of a stagnant economy and rising inflation come to the fore. this week Andy Haldane is slated to speak, who is always thought-provoking and maybe more so than usual as he is soon to be free from the current constraints of his current role as Chief Economist of the Bank of England. On Friday, we will be studying how the economy is performing when both Industrial and Manufacturing data are released, along with a snapshot of April’s Gross Domestic Product.

Euro

The euro slipped against both the dollar and the pound last week and has opened at just above $1.2150 this morning for what is sure to be a busy week for the single currency. As with the UK, concerns are growing over the spread of the Delta variant across the continent and the impact that the travel restrictions that the UK has imposed on holiday destinations will have on the economy. We have a plethora of data to digest head of the monthly ECB meeting on Thursday starting tomorrow with the ZEW* Economic Sentiment indicators, German Industrial Production and Employment, Eurozone Employment, and its GDP. Wednesday is a quiet day with only regional data to digest, and on Thursday, the ECB meets.

* Zentrum für Europäische Wirtschaftsforschung – Centre for European Economic Research

US

The non-farm data was slightly weaker than expected on Friday, and immediate thoughts of tapering and tightening were returned to the back burner and with them the recent dollar strength. As a result, some analysts think that the greenback may now ease ahead of the next Federal Open Market Committee meeting on June 16th. However, it is unlikely to see too much movement before Thursday when alongside the regular weekly jobless claims numbers, May’s Consumer Price Index (CPI) is released. CPI is likely to show a rise towards 4.8%, its highest level since the early 1990s, and any substantial increase on that forecast rate will reignite the tapering debate. As usual, ahead of the monthly Federal Open Market Committee meeting, Fed officials are in speech blackout mode until after the next meeting on June 10th.

Scandi

Sweden celebrated its National Day on Sunday and last week saw the krona strengthen against the G10 currencies. However, it has so far been a quite lacklustre six months period for the Nordic region’s largest currency which was tipped to be one of the best-performing currencies of this year at the outset. Instead, it has been stuck in quite a narrow range throughout most of 2021. This week will get the CPI figures on Thursday, which are expected to come in at 2% on a year-on-year basis and a positive change of 0.4% month-on-month.

In Norway, the week kicks off with the Industrial Production figures for April this morning, and the CPI and PPI figures are released on Thursday. Inflation is expected to be on the high side, at 2.9%, but that would be lower than in the past four months. If worries about inflation cool off, there is a chance that the market might start questioning whether Norges Bank Governor Olsen will increase interest rates come September as widely is anticipated. This kind of speculation is behind the recent Krone weakness we have experienced.

Sunny start to the month for Sterling

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

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

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

UK

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

Euro

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

US

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

Scandi

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

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

Is inflation rearing its head?

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

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

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

GBP

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

Euro

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

US

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

Scandi

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

Have a great week.
Synergy Team

Spring is in the air at last

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

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

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

UK

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

Euro

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

US

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

Scandi

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

Have a great week.

Synergy Team

Europe takes centre stage

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

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

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

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

UK

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

Euro

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

US

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

Scandi

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

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

Have a great week!

Synergy Exchange Team

Sterling get a trim ahead of the population

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

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

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

UK

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

Euro

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

US

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

Scandi

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

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

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