World Markets

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.

Good Morning, Dollar dominates all

In the run up to Easter, the currency markets remained dominated by the familiar themes of vaccinations and infections, with a strong link between the vaccination programme’s speed and the strength of the currency. As has been the case for the last few weeks, sterling has continued to perform strongly against the euro as Europe’s vaccination progress is still encountering problems. The euro is also coming under pressure from internal political upheaval and an increasingly belligerent Russia on its eastern doorstep as it continues to vacillate over the €750bln fund that it agreed last year with the German Constitutional Court now questioning its validity. Meanwhile, President Biden has unveiled a $3tln package to rebuild America’s infrastructure, and although it is unlikely to pass through the House without change, it’s symptomatic of the divergence between the economies.

The Non-Farm payroll data released last Friday was much better than expected with just under a million jobs created. We have another holiday-shortened week ahead of us and we are unlikely to see the narrative changing too radically over the next few days. The movement of the dollar is likely to continue to dominate the markets and again we will be watching the US Treasury market closely to see whether yields continue to edge higher, especially this coming Friday after the US Producer Price Index is released. With Christine Lagarde telling investors that the European Bond market will stay under the ECB’s control, the yield differential between Europe and its key trading partners is likely to widen, adding yet more pressure to that already weighing on the euro.

UK

Sterling continued to edge gradually higher against the euro last week and has opened at just below €1.1800 this morning, having had its best quarter against the single currency since 2015. The first easing of the lockdown restrictions and the UK’s tentative steps to recovery are in sharp contrast to further restrictions being imposed in France. For some time, sterling has benefited from a vaccine dividend and looks set to continue to do so. The pound has broken up through some key technical resistance against the euro and some investors are looking for sterling to move up towards the €1.20 level over the next few months. Whilst the pound is vulnerable to the resurgent dollar, it is trading relatively strongly to the rest of the G10 currencies and has opened above $1.3900 this morning. With little on the data horizon apart from Construction PMIs on Thursday, a relatively quiet week is in prospect.

Euro

The euro looks set to remain in the doldrums as its vaccination programme continues to lag both the US and the UK and its political problems mount. With the US looking at another fiscal stimulus package, Europe’s €750m response is still not implemented and it faces another challenge by the courts shortly. With little on the data front this week it’s hard to see the negative narrative changing. Its problems will be brought into focus when unemployment for the Eurozone is released on Tuesday. The only other noteworthy data sets are the continent-wide Purchasing Manager’s Indexes released on Wednesday. Apart from that, the minutes from the last ECB meeting are released on Thursday which we will study for hints on how widespread the support for the recent expansion Pandemic Emergency Purchase Programme (PEPP) has been.

US

After the non-farm payroll data reported that nearly one million people found employment in the last month the strength of the US recovery is gaining pace. If this continues then all those that lost jobs during the pandemic will be reemployed within a year. The implementation of President Biden’s “Build Back Better” recovery plan will help this recovery, and the challenge now for him is to see how much of his plan he can get approved. The significant events in the week ahead will be the release of the Federal Open Market Committee minutes from its March meeting, which should reinforce the Fed’s dovish tone and its willingness to leave the US Treasury market to its own devices. The Chairman of the Federal Reserve, Jerome Powell, has an opportunity on Thursday to further express his views when he addresses the IMF along with several other speakers from the Fed. However, his commitment to full employment is unlikely to waiver. On the data front, the weekly employment data is released on Thursday, which we will be watching for confirmation of the recent jobless trend. On Friday, analysts and traders will be studying the Producer Price index for March for inflationary trends, any sign of which will lead to a further rise in yields and the dollar.

Scandi

The Swedish krona started the month of April by weakening during what was a half trading day with thin liquidity as the nation prepared for Easter. April has a mixed track record, but Q2 is historically speaking a Swedish krona positive quarter. Vaccinations remain sluggish and it appears as if the roll-out has been somewhat halted as the Swedish government is no longer offering the Astra Zeneca jab to the under 60’s. Other things to pay attention to this quarter will be the inflation rate together with the various manufacturing and industrial production figures which will serve as an indicator of how well Sweden’s economy is adapting to a new, hopefully re-opened world. This week kicks off with the Swedbank PMI Services data out today, the Industrial Orders figures released on Thursday and the GDP Indicator and Budget Balance out on Friday.
The Norwegian krone starts trading today for the first time this month as Thursday last week was a Public Holiday. It strengthened throughout March and was briefly under the psychologically important 10.0000 level before month end. This week carries a lot of important data, including the DNB PMI Manufacturing data out today, the Industrial Orders for February on Thursday and the Inflation Figures out on Friday. The latter are expected to sit right above the 3% mark which many market commentators suggest will spur further rumours of a rate-hike by Norges Bank Governor Olsen even before the summer. Should this materialise, Norway would be the first G10 country to raise interest rates since the Covid19 crises began.

Support and Resistance

GBP/USD
Support 1.3738               Resistance 1.4039

EUR/USD 
Support 1.1679               Resistance 1.1925

GBP/EUR

Support 1.1687               Resistance 1.1855
Have a great week!

Synergy Exchange

Good Morning, Sterling had a relatively quiet time last week, mostly avoiding the buffeting that other currencies received from the resurgent dollar. As was expected, markets were dominated by central bank speakers, who took to the stage nearly every day.

Dominating the market were the thoughts of Federal Reserve Chairman Jerome Powell, who again projected a mood of benign neglect over the prospects of inflation roaring ahead, instead choosing to focus on the importance of achieving full employment.

For the time being, the markets seem content to accept this potential trade-off, and the dollar gained around a cent on the euro, pushing it to $1.1775 against the single currency, where it has opened this morning.

We have holiday-shortened weeks ahead of us for the next fortnight, as the Easter Holidays start, which will come as a welcome relief to many after a tough first quarter. With month and quarter-end on Wednesday, there could be more volatility than usual as large institutors rebalance their portfolios. This volatility will be exacerbated by the extra-long weekend ahead, and we will be watching this for its impact on an already weakened single currency, which could be particularly vulnerable as lockdowns continue to spread and there appears no end to the chaos over the vaccination programme. Also adding to the volatility will be that Europe is closed on Friday when the US releases the critical employment metric of Non-Farm Payroll. In light of these factors, we suggest that you contact your account manager early in the week if you have any requirements over the coming weeks.

UK

Thanks to the vaccine dividend, Sterling was mainly on the side-lines last week, holding broadly steady and has opened this morning €1.1688 against the euro. The data that was released was mixed and still distorted by the latest lockdown. With the first relaxation of social mixing rules today allowing us to circulate more, some economists, including BoE chief economist Andy Haldane, expect the start of a mini-boom over the summer, which has encouraged investors to buy the pound. As the vaccination programme continues, the government’s roadmap is seen as increasingly realistic, and at present, sterling appears the least vulnerable of the G10 currencies. The week ahead is quiet for speakers, with only Michael Saunders and  Silvana Tenreyro from the Bank of England slated to speak. On the data docket, we have Consumer Credit tomorrow and 4th Quarter GDP released on Wednesday.

Euro

Easter holiday’s start this week with much of Europe facing continuing lockdown measures which in several regions are getting stricter. The euro continued to suffer last week from the Eurozone’s incoherent policies over vaccines and vaccination, which has seen less than 10% of the population inoculated, and it looks set to endure some further setbacks this week. With travel to and within Europe severely restricted, the tourist industry faces another disastrous summer unless the third wave slows and vaccinations speed up dramatically. In the coming week, we will be watching this morning’s Business Climate. Tomorrow March’s Economic Sentiment and Consumer Confidence data for the Eurozone are published. On Wednesday, German unemployment data is released, as is the Eurozone Consumer Price Index. The shortened week closes out on Thursday with Purchasing Managers Indexes across the continent and German Retail Sales.

US

The coming week will see President Joe Biden start to push his $3trln “Build Back Better” programme. He is scheduled to outline this plan tomorrow in Pittsburgh, and we will be watching for any reaction by the markets to it and its potential inflationary impact. It’s predicted to be broadly well received, and the dollar should benefit from the positive effect on the economy. As usual in Spring, we entered British Summer Time over the weekend and are now an extra hour ahead of the US markets, and data releases are now an hour later in the day. As always, in the last week of the month, unemployment updates will dominate the data docket starting on Wednesday with ADP’s take on white-collar employment. These are followed on Thursday by the weekly jobs number, and finally, whilst we are enjoying Good Friday, the Non-Farm Payrolls report is released. Hopes are high for a good number, with the headline rate possibly dipping below 6%. Aside from the jobs data, in common with the rest of the world, ISM Purchasing Managers Indexes are released on Thursday.

Scandi

It was a somewhat uneventful week for the Swedish krona, which ended the week slightly weaker than it began. The Riksbank expects inflation to fall short of the 2% target through to March 2024, which has increased speculation that the krona may be rangebound for a more extended period than the market initially expected at the beginning of the year. This week sees no major data releases apart from the Economic Tendency survey, a critical gauge that is expected to have expanded to 105 from 103. Easter starts on Thursday afternoon with a half-day across the banking world and the financial markets.
The Norwegian krone’s week followed its neighbour’s trading pattern, and the political fall-out from Prime Minister Solberg’s misstep from two weeks ago has calmed down. This week sees no major data releases, and Easter starts on Thursday with the banking system and financial markets shut.

 

Have a great week!

Good Morning, tomorrow marks a year to the day since the UK population was told to stay home, and the first lockdown began. The currency markets (including bonds) are still being driven by the same fears and worries of the economic fallout from that decision.

After a year of often false starts, investors are now watching vaccination levels and their effect on the speed of recovery across the world.

Simultaneously several European countries are re-entering into lockdowns as they battle a third wave of the pandemic. In the last week, we heard how the major central banks are planning to respond to the recovery and how tolerant they are of any upticks in inflation and subsequent rise in interest rates.

The Bank of England appears moderately relaxed towards this prospect, the European Central Bank keen to keep yields low and the US Federal Reserve the most tolerant. Investors showed that they were not as benign in their views as Chairman Jerome Powell, and they sold US bonds, pushing yields higher, unsettling risk sentiment, and strengthening the dollar.

In the week ahead, it is hard to see any significant change to this data narrative driving currencies with the third wave in Europe, adding to the pessimistic risk posture that investors are starting to adopt. For the time being, sterling, as befits a beta currency, will continue to be at the mercy of the king dollar and has opened at $1.3850 this morning. With large swathes of Europe now grinding to a halt again, including France and Germany, the euro is likely to remain under pressure, which may increase as the ECB is expected to continue to support its bond-buying programme further, effectively keeping yields low.

UK

Sterling continues to benefit from the vaccine dividend and has been trading in a relatively tight range against the euro, opening this morning unchanged at €1.1650. As yet, there is scant evidence of a third wave of COVID-19 remerging, which should continue to favour the pound against the single currency, as will the outflows of global capital from Europe that HSBC reported last week. We have a full data docket to digest this week, but after the last Bank of England meeting, it would be surprising if there was a significant change in sentiment caused by any of the figures. Tomorrow the January unemployment rate is released, which isn’t expected to have changed dramatically. On Wednesday, Service Purchasing Managers Indexes and the Consumer Price Index for March are released, which are both expected to show modest improvements. On Friday, February’s Retail Sales are expected to partially recover after January’s sharp fall, but they are unlikely to unsettle the markets. Bank of England Governor, Andrew Bailey, is also slated to speak on Tuesday, but it would be surprising if he added anything to last week’s thoughts.

Euro

The, at best, confused handling of the COVID-19 pandemic and the vaccination programme that has seen less than 10% of Europe inoculated looks set to continue to unsettle the euro. With France, Germany facing a third wave, rising US yields and no great advance in releasing the fiscal stimulus promised last year, problems are mounting for the single currency. Today the market will be watching to see how the ECB responds and if it increases its Bond buying programme and, in doing so, keeps downward pressure on bond yields. We have a whole week of data to digest starting on Wednesday with a first look at the March Purchasing Manager’s Indexes for the larger manufacturing countries, followed on Thursday by GfK’s take on Consumer activity in Germany. We close the week on Friday with the Ifo Business readings also for Germany. There is a European Council Meeting on Thursday which will be an opportunity for the great and the good of Europe to air their views with Isabel Schnabel scheduled to speak.

US

Last week’s price action in the currency markets was driven almost entirely by what the Federal Reserve said, or didn’t say, after its monthly meeting on Wednesday. In doing so, they left the bond market to its own devices, and an upward spike in yields occurred, with the closely watched 10 yr. bond touching 1.75% before easing down. The bond market has traditionally been the driving force behind all financial markets, and fears are starting to increase of them throwing a “tantrum” and selling off sharply and disrupting the stock markets, which will strengthen the dollar. The data docket is a little barren this week, with only Durable Goods released on Wednesday, the weekly jobs report on Thursday, and Personal Income and Spending data on Friday. To make up for this shortfall of data, we have six different Federal Reserve members speaking next week, with Jerome Powell speaking no less than three times.

Scandi

The Swedish krona hit new 2021 lows against the euro and pound sterling last week as the inflation figure came in lower than expected, and the unemployment figure was higher at 9.7%. Whether the positive trend which started in May last year has been broken remains to be seen, especially since we are soon entering what is traditionally a krona positive period. This week we are watching the latest PPI figures out on Thursday and the Retail Sales on Friday.
The Norwegian krone ended the trading week worse than it began, thanks partly to a political faux pas by Prime Minister Solberg, who is seeking re-election in September. She broke her own government’s COVID-19 rules and attended a 60th birthday party with more attendees than the current restrictions allowed, directly affecting her lead in the polls. This week we will monitor any further potential political fall-out caused by her actions together with the unemployment rate, which is out on Friday. It is expected to have come down to 4.0%.

Have a great week!

Good Morning, King dollar came roaring back to rule the currency markets last week as inflation and yields again dominated the headlines.

As we noted previously, the efficiency of the vaccination programme and the speed at which it is being implemented is now raising concerns about the inflationary impact of a rapid bounce back by economies. With spending restricted for so long, investors fear that a glut of money will be chasing supply lines still hampered by COVID-19 restrictions. If this happens, prices will be forced up, causing inflation to reignite. With these fears firmly in mind, bond traders in the US, one of the driving forces behind the currency markets, have been pushing yields higher. As they climb, stock markets weaken, and the dollar strengthens as investors become more risk-averse, causing beta currencies such as the pound and the krona suffer.

Jerome Powell, the Chairman of the Federal Reserve, indicated last week that he is happy that the economy runs hot as his main concern is the level of unemployment in the US which is feared to be touching 10%. The Federal Reserve is now forbidden from speaking ahead of its next meeting on 17th March. Still, his shadow will loom over the markets, which probably means that the dollar will hold its ground ahead of the inflation figures released on Wednesday. The pound has opened below $1.3900, having given up more than a cent over the last week despite the chancellor’s generally well-received Budget and but it has held its recent gains against the euro opening above €1.1600 despite the increasing tensions with Europe over the implementation of the Brexit agreement.

UK

The Chancellor’s budget was generally well-received last week. It helped mitigate the yield-induced dollar strength, somewhat helping sterling be the best performing European currency except for the oil-backed Norwegian krone. Its underlying strength is also helping it shrug off the growing tensions with Europe over the trade restrictions surrounding Northern Ireland. Unusually for the UK, it looks like a quiet week ahead on the data docket, leaving the currency to remain at the mercy of the uncertainty driving the US bond and equity markets. The only noteworthy figure we will be watching out for is the backwards-looking Gross Domestic Product (GDP) figure for January. With the country in lockdown and the future looking radically different now, thanks to the vaccination programme’s success, it is unlikely to move sterling too much. This week’s only speaker of note is Andrew Bailey, Governor of the Bank of England, who is giving a speech this morning.

Euro

The rise in US yields encouraged sellers to test some key psychological and technical support levels of the euro on Friday. These levels failed to hold, and the euro has opened weaker this morning at below $1.1950. So far, the Eurozone has been sending out mixed messages in its response to the bond market sell-off. Whilst Phillip Lane, chief economist of the ECB and its President Christine Lagarde, has been jawboning, Fabio Panetta presented a different view, hinting at yield curve control, a phrase that we may start hearing more often. The week ahead is relatively quiet, with the main event being the ECB meeting on Thursday, which gives Christine Lagarde a platform to express her views on the markets. We also will be watching Industrial production data from Germany on Tuesday and their inflation data on Friday. The only other event apart from the ECB meeting will be the Eurozone Industrial Production which recent surveys have indicated will be a strong number.

US

It is unlikely that the narrative driving the dollar will change much this week after the healthy Non-Farm Payroll figure on Friday, adding fuel to the already nervous market. With President Biden announcing advances in their vaccination programme and fresh financial stimulus soon to be in the populations back pocket, traders will remain nervous of prices pushing up more rapidly than the Fed anticipates. An increasingly nervous stock market will also help keep the dollars strong as risk sentiment is reassessed. The week ahead has no speakers, but we will be watching the Consumer Price Index on Wednesday and Producer Price Index on Friday to get a further take on inflationary pressures and their impact on an already nervous market. The only other item on the data docket that may impact is the University of Michigan’s sentiment index released on Friday afternoon.

Scandi

The Swedish krona is still trading considerably weaker against both sterling and the euro than it did throughout February. One headline which could have caused more harm than it did was the news that the Liberal Party will cease its support for the Socialist-led coalition government in the next general election in the year 2022. Had the announcement been that the decision takes immediate effect, then there is a strong possibility that the krona would have lost even more ground as it might have triggered new elections during a very uncertain time. Therefore, we will now monitor the political situation more closely than before. This week is a quiet one, with the only important data set being the Industrial Orders figures that are out tomorrow.

On the other hand, the Norwegian krone is strengthening and briefly reached parity against its big brother, a level it has not been at since March 2020 when the COVID-19 crisis evolved, and oil started plummeting. The currency has now recovered all ground it lost against the euro too. Monday kicks off with the Industrial Production numbers, and on Tuesday, we will get the GDP figure. It is expected to show a contraction of 0.6% on a Month-On-Month basis.

Have a great week.