Morning Comment 21.09.20
The Euro has remained relatively strong against both the Pound and Dollar although last week that was largely as a result of domestic pressure in those currencies. The murmurs of discontent from ECB members over recent strength has seen other Euro crosses edge lower with signs that further upside may prove more difficult given the weight of long positioning in the market. For now though EURUSD remains in a tight 1.1750-1.2000 range as investors await this week’s PMIs and IFO report to get a better idea of how the recovery is evolving.
Sterling continues to attract a lot of attention from market participants with Brexit headlines and Monetary Policy contributing to heightened volatility over the course of last week. Despite the BOE unanimously maintaining an unchanged policy rate the big focus was on the serious consideration of negative rates and their future implementation. As a result the Pound remains on a weak footing with Brexit negotiations and the Internal Markets Bill still the key focus this week along with PMI data on Wednesday.BoE Governor Bailey is also due to speak twice this week on Tuesday and Thursday.
The Dollar remains on the back foot in the wake of last week’s FOMC meeting with Committee members expecting to maintain rates at current levels until labour market conditions reach levels consistent with its assessments of maximum employment and inflation has risen to target and beyond. Equity markets continue their recent correction lower although the Dollar hasn’t managed to benefit from any risk aversion flows with EM still performing strongly. There is a heavy schedule of data this week with PMIs the highlight on Wednesday while Fed Chair Powell is due to speak at several events.Tel: 1800 30 30 03 / +353 (0)1 790 0000
18 Sep 2020
Morning Comment 18.09.20
The single currency has remained resilient so far this week, despite Euro/Dollar testing the range lows around 1.1750 following the US Federal Reserve meeting. On the domestic data front, yesterday’s CPI numbers were in line with expectations however with YoY numbers now showing -0.2%, currency markets are watching for further comments from the ECB around the strength of the Euro and the impact on its inflation goal.
Sterling has rebounded against both the Euro and the Dollar this week following last week’s sharp sell-off. The main event yesterday was the Bank of England meeting where the MPC voted 9-0 to keep interest rates on hold. Much of the market focus centred on headlines that the BoE had been briefed on the implementation of negative rates, this took some of the shine of the currency. This morning’s Retail Sales numbers were in line.
The Dollar rallied briefly following the Federal Reserve meeting on Wednesday evening with the FOMC commentary not as dovish as markets had been expecting. Since then though the currency has fallen back to its previous levels and the Dollar is currently the worst performing currency in G10 with the Dollar Index back towards the lower end of its range. The University of Michigan Sentiment Index is the main data of note due today.
16 Sep 2020
Morning Comment 16.09.20
The single currency has had a muted start to the week, gaining ground against the Dollar but falling against a number of other ‘risk sensitive’ currencies. Economic data has been limited so far this week as French CPI came out in line with expectations while German ZEW numbers painted a picture of a continued recovery. The only data of note today is the Eurozone Trade Balance but the US Federal Reserve meeting this evening is likely to generate some volatility.
Sterling has strengthened so far this week despite the UK Government’s Internal Markets Bill passing the first reading in the House of Commons on Monday evening. Yesterday’s UK employment figures showed a small increase in the Unemployment Rate while this morning UK CPI numbers were higher than forecast with YoY numbers showing a rise of 0.9%. Much of the focus for the rest of the week will be on tomorrow’s Bank of England meeting along with Brexit headlines.
The Dollar continues to underperform, particularly against risk sensitive currencies, as markets remain stable so far this week. US economic data so far this week has been mixed with better Empire Manufacturing numbers while Industrial Production fell to 0.4%. The main event in the US this week is tonight’s Federal Reserve meeting which will be the first one in which the FOMC is guided by the new principles agreed to at the end of its recent framework review.
14 Sep 2020
Morning Comment 14.09.20
Last week’s ECB meeting was broadly in line with market expectations with no changes to any of the key policy instruments this month. The single currency initially rallied as members failed to push back against recent Euro strength but after reaching 1.1900 the EURUSD pair fell back once more as Brexit negotiations ended in stalemate yet again and equity market weakness ensued. Eurozone Industrial Production, the German ZEW survey and CPI releases will be this week’s economic highlights.
Sterling was by far the weakest currency in G10 last week as Brexit concerns re-emerged with the publication of the Internal Markets Bill on Wed. The EU called on the UK to withdraw the bill by the end of the month and formal talks were immediately paused as both sides took stock. The Pound fell by almost 4% against the Euro last week, with Euro/Sterling at its highest levels in 6mths. There is plenty of events this week with UK GDP, CPI and the Bank of England meeting on Thursday.
It was a quiet week last week in terms of economic data in the US and as a result the Dollar was largely buffeted by moves in Europe with Brexit concerns and ECB messaging generally dictating direction. Of note is the recent correction in equity markets with the Nasdaq now 10% lower than highs of two weeks ago resulting in some FX volatility. Friday’s CPI print came in marginally higher than expected while this week’s economic calendar is busier with the Fed meeting the main focus.
10 Sep 2020
Morning Comment 10.09.20
The Euro managed to recover ground against the Dollar yesterday and is broadly holding gains against Sterling ahead of today’s ECB interest rate meeting. Although expectations are that monetary policy will remain unchanged, investors will be focusing on the new macroeconomic forecasts with sources yesterday suggesting they would “show more confidence in the economic outlook” on the part of the ECB. The other main point of interest will be ECB members’ views on the recent appreciation of the currency.
Sterling continued to fall for most of yesterday’s session after the UK Government published the draft legislation for its internal market bill legislation which overrides elements of the Northern Ireland protocol and by its own admission breaches international law. Sentiment for the Pound improved later on after EU negotiators said they were not looking to suspend negotiations and the British government responded saying it would welcome an extraordinary meeting of the joint committee with the EU to respond to their concerns.
Equity markets saw a reversal of fortune yesterday with US indices up almost 2% over the course of yesterday’s session and overnight, leading to a weakening of the Dollar against most currencies. US markets are likely to remain sensitive to vaccine headlines for the time being although after a quiet week on the economic data front, investors will look to the weekly jobless numbers this afternoon to hep gauge the state of the labour market recovery with further declines in continuing claims expected.