Morning Comment 21.07.21
Euro/Dollar has drifted lower this week below the recent 1.18/1.19 trading range as risk sentiment in markets begins to sour on the back of a combination of worries around the global impact of the delta variant of Covid-19, the slowdown in Chinese economy which prompted the PBOC to cut interest rates, and the idea that the economy has passed “peak everything”. Tomorrow, the key event of the week is the ECB where President Lagarde is expected to provide new guidance on monetary stimulus after the results of the strategy review recently. On the data front, it has been relatively quiet this week, July preliminary PMIs are due on Friday.
After hawkish comments from BoE committee member Saunders on the UK outlook, the most dovish member Haskel reaffirmed his stance that now is not the time to be tightening monetary policy. This morning, Deputy Governor Ben Broadbent is due to speak; the market will be watching for clues on any potential pivot towards a tighter policy outlook. On the Brexit side, Brexit minister Frost reiterated that the Northern Ireland Protocol is “not sustainable” in its current form and all options are on the table to solve the impasse. Euro/Sterling now trades at its highest level since early June at around 0.8645 as downside risks build (see Euro section); Sterling/Dollar is back to February levels as the Dollar remains firm.
Dollar strength has been a big theme over the past number of weeks, particularly since the June 16th Federal Reserve meeting which showed several members expected interest rate rises as early as 2022. Since then, the broad dollar index (skewed towards Euro/Dollar) is 3.5% higher, and towards the top of the range in place since early November. The Federal Reserve meet next week; interest rates have fallen 30bp since the last meeting and a large portion of the hikes that were priced have been taken out as sentiment has begun to sour with the spread of the delta variant in particular. The key for the Dollar will be whether the Federal Reserve continue to move towards a tightening stance and what the timelines look like for the taper of asset purchases which has been well flagged. July preliminary PMIs are due on Friday.Tel: 1800 30 30 03 / +353 (0)1 790 0000
16 Jul 2021
Morning Comment 16.07.21
This week has been a quiet one for Europe on both the data front and news flow with price action in the Euro relatively subdued; Euro/Dollar has traded a 1% range between 1.18 and 1.19, some support is expected at 1.17 with the backdrop of Dollar strength. Euro/Sterling continues to trade the 85-86p range, sinking lower towards 85p yesterday morning after the hawkish comments from the Bank of England’s Saunders who mentioned monetary tightening might be required towards the end of this year. Next week, the key event is the July ECB monetary policy meeting which is expected to be lively as President Lagarde told investors to prepare for new guidance on monetary stimulus.
Bank of England committee member Michael Saunders was unambiguously hawkish on the outlook for the UK in a speech yesterday after very strong labour market data, and noted that should the downside risks outlook continue to recede then some degree of monetary tightening would be required, either in the form of ending asset purchases earlier than expected, and potentially raising interest rates in early 2022. The shift in tone coincides with a Lords report from the UK parliament which slated the continued use of the asset purchases programme, noting that it is widening Britain’s wealth gap by boosting asset prices, and it poses a long term threat to the public finances. The pound was stronger after Saunders speech, before giving back gains later in the day.
Federal Reserve Chair Jerome Powell testified before the Senate Banking Panel yesterday and defended the central bank’s stance of continuing to prove emergency levels of monetary accommodation in the face of larger than expected inflation prints. The Fed Chair pointed to re-opening sensitive sectors which are driving the price increases, and Powell described the price developments as “unique” in history. Treasury Secretary Yellen said she will speak to President Biden regarding whether to nominate Powell for another term as chair, while noting the Fed has done a “good job” since the Covid-19 crisis struck. Price action in the Dollar has been firm recently without any major breakouts as the Federal Reserve continue emphasise that the recent inflation is transitory.
12 Jul 2021
Morning Comment 12.07.21
July has been a relatively quiet month for Euro/Dollar, trading in a 1% range around 1.1850, and that theme continues this morning with a quiet open. Over the weekend, European Commission President Ursula von der Leyen announced that Europe is on track to fully vaccinate 70% of the adult population by the end of the summer which is a notable achievement considering the criticism levelled at Europe at the start of the global vaccination campaign. The only notable data release this week is the final reading for June German CPI.
This week, Prime Minister Boris Johnson is due to make the final decision on whether the Stage 4 re-opening will go ahead as planned in the UK on July 19th. The decision comes in the face of the highest number of Covid-19 cases since January 24th at over 30k cases, however the rate of increase of cases has stalled in recent days. Euro/Sterling continues to grind lower towards 85p, while Sterling/Dollar sits above 1.38 having bounced from support found late last week at 1.3750. This week, CPI for June is expected at 2.2% YoY.
US interest rates fell last week on the back of weak data from China indicating the potential for a slowdown in global growth. The Fed Minutes provided little new information mid-week, while the price of oil reversed sharply from the new highs set at $77/bbl as the ISM Services Index fell from 64 to 60.1. The Dollar was mixed, higher by over 1% vs commodity currencies, but underperforming the Swiss France, and the Yen. This week, CPI for June is expected at 4.9% YoY, with Retail Sales due on Friday.
7 Jul 2021
Morning Comment 07.07.21
Despite a positive tone to start the week, Euro/Dollar failed to trade back above 1.19 and a dip in risk sentiment has led to broad US Dollar strength. The single currency was not helped yesterday by economic data out of Germany which showed Factory Orders falling below expectations while German ZEW fell from 79.8 to 63.3 later in the session. In other markets, European interest fell by up to 7 basis points and a sharp turnaround in the price of oil as well as equity markets led to a strong ‘risk off’ tone. This morning’s German Industrial Production numbers were close to forecasts while later today the European Commission will release their latest set of economic forecasts.
The path of the Pound followed the general tone of risk sentiment yesterday, in line with the correlation that has been in place during recent years. Euro/Sterling initially tested support around 0.8530 in the morning before financial markets began to turn lower, this in turn saw Sterling strength reverse with Euro/Sterling ending the day largely unchanged while Sterling/Dollar briefly fell below 1.38. On the economic data front, yesterday’s UK Construction PMI rose to 66.3 – its highest level in over three years – while the only other major release due is Friday’s Industrial Production figure. Despite the recent rise in cases, the UK looks set to fully re-open as planned later this month.
The US Dollar was the clear winner in currency markets, eclipsing the highs set late last week after a sharp turn lower in equity markets and the price of Oil. The S&P Index closed the day lower while the price of Oil reversed sharply from the new highs set at $77/bbl. Yesterday afternoon’s US data also disappointed, particularly the ISM Services Index which fell from 64 to 60.1. The main focus for today will be on this evening’s FOMC Minutes which are likely to give more detail regarding the Federal Reserve’s ‘hawkish’ shift last month which saw markets price in earlier interest rate hikes in the US and gave a boost to the currency. Secondary data is due over the remainder of the week.
5 Jul 2021
Morning Comment 05.07.21
Euro/Dollar continues to struggle as the Federal Reserve gradually start to pivot to a more hawkish stance. The cross currently trades close to 1.1850, the lowest level since early April – below here the next support comes in at 1.17. The European Vaccine Passport was official launched last week to facilitate travel in the union, and to provide relief for European economies such as Spain, Portugal and Greece which are highly levered to tourism. President Lagarde of the ECB highlighted that the European recovery is now getting underway, but that the situation remains fragile, and the balance of risks is starting to tilt to the downside due to the delta variant of Covid-19. The ZEW for July is the data highlight this week.
Boris Johnson is due to hold a major press conference today to announce his “Big Bang” decisions to end most corona-virus restrictions in England on July 19th – he is due to explain why be and the UK government believe the link between cases and serious illness has been broken and why it will soon be safe to end the majority of social distancing laws that have been in place for the best part of 16 months. Sterling continues to trade near the bottom of the recent range against the Dollar – support is expected at 1.365, while 1.40 will provide strong resistance. Euro/Sterling continues to trade either side of 86p.
The US employment report for June was the key event last week where 850k jobs were added to the US economy, above expectations of 700k. Even amidst the large job gain, the unemployment rate ticked up to 5.9% which raises a couple of questions about the headline number of jobs added – the Dollar was sold post the release and has had a steady start to the current week. The June ISM Services Index is due tomorrow, along with the minutes from the June FOMC meeting on Wednesday which will be closely watched given a number of committee members pivoted to a more hawkish stance recently and expect interest rate rises in 2022.