Last week, sterling price action highlighted its sensitivity to both Brexit and negative interest rate news. The currency started the week on the backfoot as the Internal Market Bill was discussed in the House of Commons where it was highlighted that if passed, the UK has the ability to break international law. This came under criticism from all the living past Prime Ministers and was even attacked by US Presidential Candidate Biden. However, the rhetoric softened as PM Johnson meet with backbenchers and EC President Ursula von der Leyen stated that she felt a deal was still possible. Meanwhile, both the FOMC and BOE met to deliver their latest interest rate policy and relay their thoughts on economic policy. In the US, the Fed’s amendments to its policy guidance talked about allowing inflation to move “moderately” above target for “some time” before it will raise interest rates with the majority touting at least 2023 before interest rates are increased. In the UK, the BoE stipulated the possibility of negative interest rates, increasing the probability they give to a move below zero in 2021 pushing Sterling lower at the time. Concerns of UK economic growth were further compounded as the pace of expansionary data slowed and new COVID cases in the UK remained on an elevated path. Local lockdowns were implemented with concerns of more widespread consequence amidst the ongoing testing capacity debacle. Looking to the week ahead, Brexit and COVID headlines will continue to dominate. Informal talks between the
Last week Sterling fell to multi-month lows against both the US Dollar and the Euro as Brexit negotiations soured following the wording of the proposed UK Internal Market Bill being released. If passed this will breach the Withdrawal Agreement and break international law. As a result, we saw tensions between the UK and EU intensify. The EU commission stated that the emergency meeting of the UK-EU joint committee had not cleared EU concerns over the Internal Market Bill. It rejected the UK contention that it would protect the Northern Ireland peace agreement and called for measures to be withdrawn by the end of September at the latest, and legal action has been threatened. There was confirmation that the talks would continue this week which provided an element of relief. Meanwhile, the big market event of the week was the ECB meeting. In the week prior, there was concern and speculation over the current strength of the single currency, prompting the currency to weaken in the period leading up to the meeting. The ECB made no changes to interest rates at the policy meeting and there were also no changes to the quantitative easing programme with bond purchases continuing under the PEPP scheme. The forward guidance was unchanged with bond purchases set to continue until at least June 2021 and interest rates remaining extremely low. The economic assessment was slightly more optimistic from ECB President Lagarde. She noted that the deflation risks had declined slightly since June despite the very
Last week, the US Dollar made its biggest gain for two and a half months following the sell-off in the stock markets, in particular the Nasdaq (which is tech-led). There was no significant trigger for the sell-off, but commentators have rationalized the long winning streak and potential fears of a second wave of COVID-19. In the meantime, economic data was closely watched from the US for several reasons, including growth momentum, the upcoming presidential election in November and COVID. The headline figure for the week was the US labour data which came out stronger than expected. The headline non-farm payrolls hit expectations of 1.37m, whilst unemployment moved lower and average earnings edged higher. These numbers are likely to help President Trump. Closer to home, tensions between the UK and the EU don’t seem to be easing. The Prime Minister's office is reported to only see a 30-40% chance of a post-Brexit trade deal being agreed with the EU before the end of 2020. Currently, at the time of writing, peer to peer betting exchange Smarkets have the odds of no-deal emerging between the UK and EU before the end of 2020 at circa 60%. Over the weekend further tensions have been cited as Chief Negotiator Frost warned that the EU stance may limit the progress that could be made in the talks which resume on Tuesday. In addition, there are reports of new UK legislation which would over-ride the withdrawal agreement of Northern Ireland which may increase tensions sharply.
By Jamie Jemmeson ACSI, MSTA at Infinity International Background The UK officially entered a recession following the Q2 GDP release in early August - a recession is defined by two consecutive quarters of negative growth. Whilst a recession was not unexpected, the position of the nation’s economy in comparison to its peers is somewhat of a concern. The official reading saw UK Q2 GDP contract by 20.4%, a record low. Compounding the concern for the UK economy is that this is the largest contraction for Q2 GDP amongst its peers in the G7. State of play The UK has not only suffered the highest number of COVID deaths in Europe, with 41,499 deaths at the time of writing but is also suffering from the deepest recession in the G7. This is not coincidental; the figures are intrinsically linked. The surge in deaths due to late lockdown dented economic confidence resulting in the dire GDP figures reported. Please don’t emigrate to Japan just yet – it’s not all doom and gloom. The monthly UK GDP figure, as opposed to quarterly detailed above, is likely a more appropriate reading of recent economic activity. Given the fluid changes in guidance, travel corridors and easing of restrictions we have seen over the last few months, the figures are certainly more upbeat. The monthly figure for June reported an increase of 8.7% – a record single-month increase and slightly stronger than forecasts suggested, with May’s GDP figure also revised higher. This trend has not
Last week the focus was on the Jackson Hole symposium where Powell confirmed that the central bank would adjust the inflation target to an average of 2%. Powell went on to state that employment will be given greater importance in achieving goals. The central bank is now more confident that higher employment will not lead to higher inflation and the economy will be allowed potentially to run at a faster rate to boost long-term employment. The inevitable implication that interest rates will remain at very low levels for a longer period and potentially undermine the dollar. However, there was some positive news as Q2 GDP data was revised to a contraction of 31.7% from 32.9%, slightly stronger than forecast. Economic data was mixed as US durable goods orders increased but consumer confidence declined to a 6-year low. Closer to home Sterling started the week on the back foot as following downbeat Brexit comments from the previous week. However, GBPUSD rose to fresh highs following the FOMC Chair’s comments. Despite the stress to the UK economy the Pound continues to shrug off negative data. The CBI retail sales survey dipped to -6 for August. The CBI stated that sales are forecast to decline at a faster pace in September with a reading of -17 for the expectation’s component. In the meantime, labour-market trends will be an important focus with August employment cut at the fastest pace since February 2009 and companies expect the rate of job cuts to increase further
Last week we saw the US Dollar remain under pressure as economic data raised some question marks about its recovery. A leading indicator for employment, the weekly jobless claims, increased back above a million posting a figure of 1.1m, which was greater than the forecast of 930k. Compounding the recovery question marks was the Philly Fed Manufacturing data which was lower than expected as well as down from previous reports, suggesting that momentum is slowing. Keeping the Dollar under pressure was the sentiment in equity markets, with news from Pfizer that its Covid-19 vaccine was on course for regulatory review in October, has lent support. Sterling had a whipsaw week as both economic data and trade talk news drove the price. Sterling moved lower initially as speculation mounted that tensions between the UK and EU were raised during their trade talks. It was reported in the Financial Times that Brussels has rejected the UK’s opening demands for continued wide-ranging access to the EU for British truckers. During Friday’s press conference, Sterling once again came under pressure following comments from negotiators Michel Barnier and David Frost. The EU negotiator stated that he was "disappointed" and "concerned", whilst UK negotiator David Frost spoke of "little progress". Meanwhile, economic data continues to remain positive for the UK. Retail sales, services and manufacturing data all improved highlighting that the recovery’s momentum is continuing post easing restrictions. It will be interesting to see if the UK can continue this once the government’s schemes end - Furlough and Eat
Given the uncertainty right now, businesses need to have some idea of a consensus (mean forecast) and a potential worst-case (high or low forecast) scenario in terms of FX rate. We have collected the views of over 40 financial institutions to articulate the high, low and mean forecasts for the next 12 months in an attempt to provide this information to businesses. As you will see, the forecast still predicts a high degree of uncertainty based on the differential. Download the PDF report for the details: Infinity_FX Forecast August 2020 Infinity International would be happy to offer a complimentary FX review of your current process to offer a fresh perspective and to highlight any areas that could be made more efficient. If you would like to organise a time for an exploratory conversation, please leave your details below. The review would encapsulate: Strategy ideation to align FX risk management with your business objectives FX volatility assessment to understand the impact of a significant FX rate Credit terms to ensure efficiency for cashflow when hedging currency (subject to approval) FX pricing to determine your current cost of your current provider vs Infinity International rate Fill out the below form to receive an obligation free FX review: Request a FREE FX Review We’re here to cut through the clutter and industry jargon to provide you with relevant information so you can build your understanding of foreign exchange markets.
Last week Sterling was treading water as it continues to deliberate what COVID-19 and Brexit means for the longer-term prospects of the nation. Last week’s reading monthly GDP highlighted this uncertainty. The monthly GDP saw a 1.8% monthly rise in May, well below expectations of 5.5%. In the meantime, UK employment data whilst better than expected, received a tepid response as several companies continue to announce job losses and there is concern that this figure could rise in August as the governments contribution to furlough payments drops with the employer making up the difference. US economic data continues to remain positive. Last week, US retail sales, industrial production and Philadelphia manufacturing data all reported better than expected readings. However, the tone remains cautious as new COVID-19 cases hit a record high in the US of excess of 75,000. The market remains cautious about what this could mean for the US economy. Whilst economic data remains positive, it is backward looking, and the market will keep an eye on COVID-19 and what impact it could have on future data. The focus of the week was on the EU economic summit with the market glued to developments surround the recovery fund. The meeting has extended beyond the weekend and will continue today. The EU recovery fund would be borrowed via instruments on the financial markets, to be paid back sometime after 2027. Leaders are at odds over how to carve up a vast recovery fund designed to help haul Europe out
By Jamie Jemmeson ACSI, MSTA at Infinity International A fortnight ago, we published our insight piece on “What hedging tools and what flexibility is right for your business?” in our FX Hedging series. We highlighted what we consider to be some of the salient talking points when deciphering the ideas and products available that could warrant reflection during the uncertain times of coronavirus. Within this FX Hedging series, we published some of the main points and what these could mean to your business in the coming weeks and months as we enter a new phase of life (and businesses) under COVID-19 conditions. This is our final instalment in the series, where we will unpack in more detail “What facilities are available to your business?” If you missed the previous articles in this series, you can catch up: Points to Consider Before FX Hedging in COVID-19 Conditions Can Your Business Identify and Understand its FX Exposure? What Impact Could Hedging Have on Your Business? What Hedging Tools and What Flexibility Is Right for Your Business Towards the start of the coronavirus crisis the Government quickly recognised that cash flow could become a big challenge for UK businesses and swiftly introduced various initiatives such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Future Fund to try and assist businesses. Whilst they have not escaped criticism, they have helped to ease the burden. It has become necessary for many businesses to reassess their appetite towards risk inclusive of banks, finance
Last week was a mixed week for sentiment, with many eyes on the downside due to concern of an increase in COVID-19 cases in the US - new cases growing to north of 60k a day with Florida reporting in excess of 15k a day. In recent weeks, economic data from the US has been to the upside, but as a result of the recent surge Federal Reserve policymakers have warned that activity may be “leveling off” and that more fiscal support may be necessary. In the meantime, UK Chancellor of the Exchequer Rishi Sunak’s Summer Economic Update outlined the second phase of job retention measures. This has come in a three-step plan focusing on jobs, including a Job Retention Bonus to keep furloughed employees in work, a Kickstart Scheme for 16-24-year olds and targeted measures for hospitality and housing. Brexit newswires have been mixed and are likely to remain as such for the foreseeable future. It is difficult to say when exactly talks will conclude, given they had ended earlier than scheduled in the past two weeks; is this a good or bad sign? There were reports that the EU could be willing to compromise on the issue of fishing rights. Cabinet Minister Michael Gove said on Sunday progress was being made in talks but there were still divisions. Gove went on to say, “at the end of this year we are leaving the single market and Customs Union regardless of the type of agreement we reach with