USD

Good Morning, Inflation fears – Volatility returned last week as the markets started to take seriously the chances of a sharper recovery than many investors had been anticipating.

As could be expected, US Bonds sold off, reflecting investors’ fears of inflation and the subsequent need for higher interest rates.

Other asset classes, such as equities, became less attractive with increasing interest rates, forcing a reassessment of risk. Last week’s turning point was when the yield on 10-year bonds became higher than the yield on the S&P stock index and, in doing so, brought the risks of overly inflated stock markets into focus. As the stock markets react negatively, the dollar benefits from its perceived safe-haven status, and beta currencies such as the pound and Swedish krona suffer. However, it must be noted that the pound performed better than most of the G10 currencies and even touched the giddy heights of $1.4250 at one point.

After the passing of President Biden’s $1.9tln relief package late on Friday night, we are expecting more volatility in the currency markets as the inflationary impact of such a mammoth stimulus to the economy is calculated. This week several Federal Reserve officials are talking, including Fed Chairman Jerome Powell on Thursday, and we will be watching to see if they look to calm the markets. There is also a raft of data out in the US, including the monthly Non-Farm payroll report on Friday, for investors to digest. Closer to home, there is also plenty to look forward to from the UK, if that’s the right phrase to use when Chancellor Rishi Sunak presents his first Budget on Wednesday afternoon.

UK

The pound had a volatile week against the dollar, with a larger than normal trading range of nearly three cents over the period and has opened just under $1.4000 this morning, as stock markets remain nervous. Sterling looks set to continue to benefit from the UK’s impressive vaccine rollout and the newfound optimism over the economy’s prospects. Against the euro, the pound has held onto a lot of its recent gains, opening at €1.1570, showing the markets faith in Boris Johnson’s roadmap to a full reopening of the economy by Mid-Summer’s Day on the 21st June. The final figures for Markit’s Manufacturing Purchasing Managers Indexes (PMI) are released this week, but Chancellor Sunak’s budget, on Thursday, will be the dominant event. During his speech, we will learn whether the government plan to extend the furlough scheme for a further few months and, as importantly, how he intends to get on top of the pandemic induced debt burden.

Euro

The European Central Bank has taken a different attitude to the US regarding the selloff in bonds and has hinted strongly at further intervention and flexibility to calm the markets. It has been using its Pandemic Emergency Purchasing Programme (PEPP) to intervene and make for orderly markets by buying large amounts of assets, roughly €17bn per week. They are likely to announce an increase in this number today, and unless it’s a sizeable amount, the negative sentiment will increase and damage the single currency. The euro is also not helped by the ongoing debates over reopening that are taking place between the leaders and the increasing tensions between them. This week’s data will give us some signs of how the EU’s economy is faring. The Eurozone Consumer Price Index is released tomorrow, and Retail Sales and Unemployment data are released on Thursday. The ECB has plenty of opportunities to present their views, starting when President Christine Lagarde and Luis De Guindos from the ECB speak this afternoon. On Wednesday, Isabel Schnabel and Fabio Panetta are also slated to speak.

US

The passing of the $1.9trln stimulus bill late on Friday looks set to lead to further volatile trading sessions this week, as investors weigh the impact of such a large amount of cash coming into the economy will have on inflation. These fears are likely to translate into further sales of the US bond market as yields rise and a consequential appreciation of the dollar, causing sterling to come under pressure. Several officials from the Federal Reserve will have the opportunity to air their views when they speak in the week ahead. Most important of all, Chairman Jerome Powell is speaking on Thursday. So far, he has not signalled any intention of standing in the way of higher yields, and investors will be watching to see if he modifies his attitude. The markets will also get to know how the real world is coping with the release of various employment data sets, including the critical Non-Farm payroll number on Friday. It is worth noting that traders may be circumspect of this data as it is likely to be distorted by the recent weather in the Southern States and the partial reopening of California. As elsewhere in the world, we will also be watching PMI data when it is released on Monday and Wednesday and Factory Orders on Thursday.

Scandi

What could have been a month which saw the breaking of a 5 year-long trend of krona weakness in February suddenly saw all gains made in the past 3 weeks evaporate in less than 12 hours. This happened as the fear of higher US interest rates affected all beta-currencies. The krona finished the month weaker than it started against the euro and is now trading at levels last seen in June 2020 against Pound Sterling. The longer-term picture for the Swedish krona has not changed, and it remains the currency most analysts expect will gain the most in 2021. Whether speculation about higher interest rates continues to impact its current favourability is something we will closely monitor. This week kicks off with the Swedbank PMI Manufacturing Survey, and the Budget Balance is released on Friday. The Stockholm region and the regions north of it have their mid-term elections this week.

The Norwegian krone followed its big brother on the last two trading days, and it too finished the month weaker than it started despite going from strength-to-strength throughout February. Monday starts with the DNB PMI Manufacturing Survey, which is the only important data this week. As with all currencies, any further speculation about higher interest rates will be of utmost importance.

Have a great week.

Synergy Exchange

Good Morning, Sterling fights on 

Sterling continued to rally last week and now stands some 5.5% higher against the dollar than it did in mid-December and 6.55% higher against the euro. Several factors are driving the currency, most notably the continued expansion of the vaccination programme, which now sees over one-third of the population inoculated. The economy is now on the verge of a staggering reopening, and we all wait for the announcement from Boris Johnson of the government’s plans this evening with a mixture of trepidation and excitement. Also helping sterling is the, so far, smooth transition from the European Union. This is not to say that there are no problems by any chalk as the appointment of ex-chief Brexit Negotiator Lord David Frost to the cabinet this week infers.

The markets are increasingly trying to judge the strength and timing of the economic recovery. This was not helped by the mixed messages from the economic data released last week. The difficulty that investors face is neatly summed up by comparing US Retail Sales figures’ strength with the weekly employment data’s weakness. The market expects the Biden $1.9tln relief package to pass and help kick start a strong bounce back to resolve the unemployment levels. In anticipation, yields on Government securities are rising and touching the highest levels for a year. The most important events we will be watching in the week ahead are Federal Reserve Chairman Jerome Powell’s testimonies and how he views the economy. Over the last year, the Federal Reserve, in common with the other central banks of the world, have pumped unprecedented liquidity in the world’s financial system, and they all now face the problem of when and how best to turn the money taps off without causing panic in the markets.

UK

Sterling had a strong close on Friday and has opened above the psychologically important level of $1.4000. The danger is that the currency overshoots in anticipation of a rapid reopening and the much talked about pent up demand being unleashed. This evening the UK’s population and the markets will be listening to the Prime Minister to see how quickly a semblance of normality can return. The pound will remain sensitive to the easing roadmap’s nuances that the government has promised to unveil today. Hopefully, with vaccinations becoming increasingly widespread, a large proportion of the population will have had their first dose by Easter. Still, with second doses not for a further three months, the government will likely err on the side of caution when it comes to ending lockdown. On the data front, the prominent figure this week is the monthly unemployment data out tomorrow, which hopefully will show a stabilisation, but it remains distorted by the ongoing furlough scheme. Also, of interest will be the Governor of the Bank of England in front of a Treasury select committee on Wednesday.

Euro

The euro ended the week against the dollar pretty much where it started and is trading this morning at $1.2110. The political risk has subsided slightly with Mario Draghi confirmed as Prime Minister in Italy. The issues over vaccine delivery are also calming down; however, the number of doses delivered is still low compared to the UK, which has encouraged sterling buyers again this morning, and it has opened at €1.1550. The economic data that was released last week was mixed. However, if a healthy number from the German IFO is released this morning, the euro may find some fresh buyers. Christine Lagarde is scheduled to speak this afternoon, but recently the ECB has seemingly been more relaxed about the euro’s level, so no market-moving comments are expected.

US

The US bond markets have been the focus of the financial markets’ attention for most of the year so far and will remain so this week. The yield on the bellwether 10-year Treasury bond has touched new highs at 1.34% as investors anticipate a recovery leading to higher inflation. The difficulty that central banks face is not to spook the bond markets by being overly optimistic of the economy, which would infer that the period of easy money was ending. If this were to happen, risk sentiment would sour rapidly, and a stock market rout could follow. So, no pressure on Fed Chairman Jerome Powell when he gives his semi-annual monetary policy testimony on Tuesday. There is quite a busy week on the data docket, including Consumer Confidence tomorrow, the 2nd estimate of Q4 GDP on Thursday and as normal the weekly unemployment data. On Friday, Personal Income and Consumption data are released, which will be watched for inflationary signs.

Scandi

Despite Riksbank Council Member Skingsley saying that negative interest rates are very much being considered and should not be ruled out, the krona finished last week higher against the EUR. It is now heading for a positive ending to February, which has not happened for the past five years. The krona is the darling of most currency analysts and may in other words end what usually is a krona negative month on a positive note. And as such enter, what usually is a positive period on an extremely strong foot. It is, however, worth pointing out that it is losing ground against the pound, a fellow Beta currency. This week the GDP figure is released on Friday together with the latest Retail Sales, the Trade Balance and Producer Price Index. Expectations are very low meaning there is room for further positive surprises.
The Norwegian krone lost some ground early in the week but then became range-bound for the remainder of the week against most G10 currencies. The lockdown in the capital Oslo has now been lifted, and new COVID-19 cases seem to be under control. This week the unemployment rate is released on Friday and is expected to remain unchanged at 4.4%.

Have a great day!

Good Morning, today is lunar New Year 

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

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

UK

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

EU

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

US

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

Scandi

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

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

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.

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.