Last week the US Dollar made significant gains across the board as the market started to question the duration of the ongoing Federal Reserve despite continued echoing from the central bank, pledging their support. The rationale for the change in sentiment from the market was the improvement in data which saw consumer confidence, labour, and spending data improve. If this trend continues then inflation is likely to improve and subsequently the potential for a rate cut but also the reduction of support mechanisms.In the meantime, the Sterling fell from its circa 3-year highs against the US Dollar and its 1 year high against the Euro. The Sterling has been boosted by the effectiveness of the vaccine rollout and the optimistic roadmap for the reopening of the UK economy. According to data compiled by Statista up to 25/02/21, the UK had vaccinated 28.57 in 100 whilst in comparison to Germany and France who are both less than 7 in 100. However, comments from BoE members were more cautious and put some question marks around underlying fundamentals. Bank of England Deputy Governor Broadbent stated that risks for employment was in both directions but that there was a clear risk that the rate will rise significantly once job-support schemes come to an end. In addition, he stated that the central bank is continuing to debate the effectiveness of negative interest; therefore, not removing the issue. In the meantime, MPC member Haskel stated that risks to activity are very much on the downside, especially

Last week, the Sterling made multi-month highs against both the single currency and the US dollar as optimism surrounding the UK’s emergence from lockdown restrictions grew. Prime Minister Johnson will be laying out his roadmap for the loosening of restrictions on Monday evening. In addition, helping to push Sterling higher was the increase in risk appetite. Whilst the optimism has boosted Sterling the UK retail sales figures will highlight the fragility of the economy. Retail sales sank 8.2% in January from the month before, the fastest rate of decline since last April. "The latest national lockdown led to a sharp monthly fall in January's retail sales, with April 2020 the only month on record to see a bigger slump," said the ONS' deputy national statistician for economic statistics, Jonathan Athow. Retailers will be waiting to decipher Prime Minister Johnson’s roadmap to articulate when the high street can reopen and under what conditions. Concerns in Europe remain regarding the rollout of the vaccination and the ongoing mutations; however, this was not necessarily reflected in the economic data released. The German ZEW economic sentiment index strengthened to a 5-month high and was above consensus forecasts whilst the wider Eurozone index strengthened to 69.6 from 58.3 previously. This was coupled with the flash reading of the IHS Markit Eurozone composite purchasing managers index which rose to a two-month high, albeit still slightly contracting. It is worth noting that the manufacturing PMI rose to a 36-month high. In the meantime, the US Dollar

Last week we saw the “risk on” tone return to the market; generally aided by central bankers. A number have expressed optimism that a strong rebound in economic growth should be possible later this year, with one Bank of England official likening the UK economy to a “coiled spring”. Federal Reserve (Fed) Chair Powell Jerome Powell said that the economy remains a long way from full employment. These comments reassured markets that they will have continued support from a combination of the expected rebound alongside very loose monetary and fiscal policy. The UK’s vaccine programme hit a landmark this weekend, hitting it target of 15 million people by the 15th February. Covid-19 cases are down for a fourth successive week, which is fuelling speculation about when the latest set of lockdowns will start to be eased. Prime Minister Johnson is set to address the nation on 22nd February with a road map for reducing lockdown levels; reaffirming that schools could reopen on the 8th March. However, as some scientists have suggested that both dates may be premature; the coming week will be watched for any adjustments and signposting to this timetable. In terms of data, UK Gross Domestic Product (GDP) increased by 1.0% for the fourth quarter of 2020, above expectations of 0.5% with a 9.9% contraction for 2020. Importantly, this removes the short-term chances of a double dip recession. However, it should also be noted that the Office of National Statistics (ONS) estimate suggested that 18% of the national

Outside of covid developments, much of the focus was on the Bank of England quarterly inflation report and policy meeting as well as the US employment data following last month’s negative reading. Starting with the Bank of England (BoE) policy meeting, the central bank made no policy changes with interest rates held at 0.1% and total asset purchases at £895bn with both decisions unanimous. The was a cautious but optimistic tone. The BoE now expects a Gross Domestic Product (GDP) contraction of 4.2% for the first quarter compared with slight growth expected in the November report because of lockdown. In terms of its unemployment outlook, they have not ruled out a potential extension by the Chancellor which could lower their peak estimates of 7.75% unemployment by the middle of the year. The other focus of the meeting was the topic of negative interest rates. The central bank revealed that it has asked banks to begin preparatory work for negative interest rates, including a tiered system of reserve remuneration. However, policymakers stressed that this was to add that to their policy toolkit and was not a policy signal. They went on to say that there would be six-month implementation period of such a policy move, which could rule out this option as they have also stated that they feel the economy could bounce back strongly in the second half of the year. Across the pond, the focus was on US unemployment data following last month’s contraction. The headline figure disappointed

Last week, the Euro was weaker across the board as there was further evidence that the European Central Bank (ECB) is concerned about the exchange rate and its impact on the economy. ECB council member Knot stated the bank would closely monitor recent Euro strengthening and determine its impact on inflation. He added that the bank could cut the deposit rate further if that proved necessary, to keep the inflation target in sight. There were also reports that ECB officials consider that markets are underestimating the odds of a rate cut. The overall developments last week increased speculation that the bank was making a more determined effort to curb Euro strength. The dollar continued to ebb and flow in line with risk sentiment, which was largely driven by Covid developments. The biggest focus on the US economy was the Federal Open Market Committee (FOMC) meeting. The Federal Reserve held interest rates in the 0.00-0.25% range, in line with expectations, and there were no changes to the asset purchase programme with Treasury purchases of at least $80bn per month. The committee reiterated that the accommodative policy will continue until inflation runs moderately above 2% for some time, in order to reach the average target of 2%. FOMC Chair Powell repeated that any short-term inflation increase would be transient and that talk of tapering is premature. In the meantime, Sterling remained supported despite risk tones fluctuating. The biggest drop for Sterling was centred around fear of an extended lockdown. PM Johnson

Last week the global focus was on President Joe Biden inauguration as he became the 46th President of the United States and signed a flurry of executive orders, including addressing the COVID health crisis. Following his inauguration, the US Dollar weakened as speculation grew of the passing of the $1.9 trillion economic relief plan. This improved risk sentiment and pushed up equity markets; subsequently resulting in a weaker US Dollar. The other big focus was the ECB meeting where there were comments from various central bankers about the strength of the currency. As expected, the ECB held interest rates at 0.0% following the latest council meeting and also made no changes to the asset-purchase programme with bond buying under the PEPP programme continuing until at the least March 2022. The statement did note that the full envelope of bond purchases did not need to be used if there was an improvement in financing conditions. The central bank also stated that they are ready to recalibrate policy if there is a negative inflation shock over the next few months. ECB President Laggard stated that the bank was monitoring the forex rate very carefully and that currency appreciation is a drag on inflation. Laggard also stated that risks to the growth outlook were tilted to the downside, although the risk is now less pronounced. Given the absence of dovish references within the meeting and a weak dollar, the Euro strengthened. Sterling has remained resilient as the vaccination program continues to be

Last week we saw another one for the history books as the House of Representatives voted to impeach President Trump following the uprising at the Capital the previous week. This makes President Trump the first President to be impeached twice. President Elect Biden is due to be inaugurated on Wednesday. In the meantime, a stronger US dollar emerged this week for several reasons. Firstly, the single currency lost momentum after comments from various Central Bankers, including ECB President Lagarde, commented about the potential for verbal intervention if the currency continued to strengthen. Compounding Euro weakness were concerns over the ongoing COVID backdrop as German Chancellor Merkel stated that restrictions may need to be in place until April. Sterling made gains against the single currency but lost ground against the US Dollar. Conflicting comments from BoE officials on the likelihood of negative interest rates in the UK fueled fluctuations in Sterling. This is likely to remain a factor until the central bank’s report on negative rates is released next month. Keeping sterling positive was the ongoing momentum behind its vaccination programme. Th US Dollar made gains as risk appetite remained fragile with the new variant in the COVID strain from Brazil and the ongoing pressure and uncertainty this brings. President Elect Biden proposed a $1.9trn fiscal stimulus package this week, on top of the $900m package that was passed by Congress late last year. Biden will want to get these new measures through Congress as quickly as possible. However, with

Last week the market settled after the US Dollar touched 32 month lows to settling a relatively tight range. Unprecedented scenes in Washington dominated the newswires in the second half of the week with the ongoing debate and rumours of actions being taken to remove President Trump despite his tenure coming to end. In addition, the Democrats won the two Georgia Senate seats and effectively took control of Congress.In the UK, the new variant of COVID is resulting in a very serious escalation in infections and hospitalisations, but vaccinations to the most vulnerable groups and frontline workers is underway. The government is targeting about two million jabs a week to reach about 13 million by mid-February, with the hope that lockdown restrictions can start to be eased soon after. Bank of England Governor Bailey stated that markets had broadly been expected the Brexit trade deal that was secured. He went on to comment that GDP could slide by 4% as a result of the Brexit trade deal; but only time will tell.  It was also reported that a report a negative interest rates to be published at Feb’s MPC meeting.The key economic release and data focus was on the US labour readings. The economic data painted a bleak picture and highlight an economy on the slide; a challenge that President Elect Biden will have to tackle. The all-important nonfarm payrolls in the US fell by 140,000 in December, missing the market expectation of +71,000 by a wide margin. The market

Last year didn’t really go to plan. The first case of COVID-19 was identified in Wuhan, China in December 2019, but nobody could have predicted the global impact that this would have on economies, nor the political and social impact. Our Quarterly Report provides context on the UK, US and Eurozone markets of last quarter and highlights what we believe will be the focus of each of these regions over the coming months. In this report we will focus on the worldwide vaccine rollout, the new leadership in the United States and the resulting effect on volatility. In this paper we will highlight some of the key factors that could drive GBP, EUR and USD exchange rates over the coming months as well as displaying institutional forecasts on GBPUSD, GBPEUR and EURUSD. For the currency markets it was a year of two halves, in large driven by the US Dollar. The first phase saw large scale Dollar strength as the market deciphered the COVID pandemic, resulting in a bout of risk aversion and subsequent US Dollar strength. The second phase was a prolonged bout of US Dollar weakness as the market determined the Federal Reserve’s change in inflation policy, and the dawn of a new administration as opinion polls turned sour for President Trump. UK/EU trade talks continued to ebb and flow and, in some cases, provided a thorn in the side of Sterling. However, a deal was struck at the end of 2020 and passed by the respective

The final weeks of 2020 saw some big and impactful changes that have influenced exchange rates. Firstly, the protracted UK/EU trade talks concluded on Christmas Eve and was subsequently approved by respective parliaments. The market may take some time to decipher the actual impact on the UK economy. The main area where the trade deal falls short is for a equivalence framework between the UK’s and EU’s financial sectors. Considering 43% of the UK’s financial services operate overseas this could impact national GDP figures. Secondly, the UK MHRA regulator approved the Astra Zeneca/Oxford vaccine for use. This vaccine is much easier to distribute than the Pfizer version and the UK has also ordered 100 million doses with the rollout of the vaccine starting this morning. Despite the positive news, Sterling has fallen against the Euro and US Dollar as the UK looks set for another national lockdown. In the meantime, late in 2020, the Euro gained an element of support from the UK/EU trade deal providing some underlying relief over near-term trade trends. However, ECB Council member Rehn stated that officials are monitoring the Euro’s strength closely. He reiterated that, although the bank does not target exchange rates, appreciation does have important effects as it leads to a loss of competitiveness and affects the outlook for growth and inflation. Looking to week ahead, the market will be getting its feet back under the table to decipher the current state of play and investment environment. The prospect of further COVID restrictions