Economic Outlook Q4 2020: Focus on FX Budgeting & Strategies for 2021

This quarter we should see the conclusion of various risk events that have been looming since the turn of the year; namely Brexit UK/EU trade talks and the US Presidential Elections. In a move away from our normal quarterly outlook (after all these are abnormal times), we will be focusing on some of the challenges that businesses are facing as we look towards 2021. We will cover ground on budgeting and deploying a currency strategy that is appropriate for the uncertain future. In this report, we will focus on the action central banks and governments have taken and the resulting effect on volatility. This year has been tough for many businesses, we are all hoping for an improvement in 2021, but in the words of James Cameron: "Hope is not a strategy. Luck is not a factor. Fear is not an option." However, you will also find our regular content where 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. Read the full report: Infinity_Economic Outlook_Q4 2020 Subscribe to receive our updates in your mailbox! This blog post is intended to provide you with information on the services Infinity International Limited (IIFX) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Foreign exchange rates

2020-10-23T15:14:40+00:00October 23rd, 2020|

UK/EU Trade Talks Drive Sterling Whilst US Presidential Elections Remain in Focus

Last week we saw UK/EU trade talks continue with Sterling nudging higher as hope for a deal continues to grow as the time to complete discussions extends and erodes. EU Chief Negotiator Barnier stated that a deal was unlikely by the October 15-16th Summit and instead the meeting will be used as a stock checking exercise to understand the state of play. There were also reports that Barnier had been instructed to keep a hard-line position on fishing, however, UK Chief Negotiator Frost hinted that fishing measures could be phased in – a big change in tone to what has been stated previously. Ongoing signs of progress helped keep Sterling elevated. While Bank of England Governor Bailey stated that the economic recovery had been very uneven across the country and that risks are very much to the downside. He commented that he strongly hoped that there would be a Brexit deal, but the post-transition period would not be easy. He also commented that we must use policy aggressively and actively with the bank by no means out of firepower. In Europe, market data was quiet but, not without some rhetoric from the central bank. The Euro was hampered by fresh speculation that ECB President Lagarde would signal that the central bank would move towards further monetary easing, including the possibility that interest rates would be pushed deeper into negative territory. ECB President Lagarde reiterated that the bank does not target the exchange rate but is paying close attention to

2020-10-20T09:20:30+00:00October 12th, 2020|

UK/EU Trade Talks Plus Trump’s COVID Concerns Drive FX Price Action

Last week further demonstrated the sensitivity of sterling to Brexit negotiations. Developments from Thursday onwards highlighted responsiveness as the currency traded between a 150-pip range as positive and negative headlines hit the wires. Sterling was boosted by news that UK PM Boris Johnson and EC President Ursula von der Leyen agreed that talks will continue to "close significant gaps". Brexit headlines are likely to continue to dictate sterling movements. We saw the headline Euro-zone CPI inflation rate declined below expectations to -0.3% for September from -0.2% previously. The core rate (excluding food and energy) also declined to 0.2% from 0.4% also below market expectations of 0.5%. This was the lowest core reading since the Euro was introduced and will reinforce pressure for the ECB to take additional action to underpin both reported inflation and inflation expectations. The end of the week resulted in some unexpected news as President Trump released the news that he and the first lady had contracted COVID. Concerns heightened over the weekend as they were taken to hospital. News has since been inconsistent. The market will be focused on when he is discharged (rumoured to be early this week) and what the potential implications are on the next TV debate, voting behaviours and the net impact on the election. Looking to the week ahead, the market will be once again focused on Brexit trade talk developments as we approach the EU summit on the 15th of October. In the meantime, the situation surrounding President Trump

2020-10-05T13:38:51+00:00October 5th, 2020|

Brexit News and COVID Developments Are Likely to Drive Sterling

Last week we saw the focus on the UK with both Brexit, growing COVID concern and the economic support mechanisms being discussed. PM Johnson announced a tightening of restrictions in England, while other parts of the UK also made some changes. Chancellor Sunak followed this up by announcing further support mechanisms to help following the end of the furlough scheme which expires at the end of October. There was also an extension of the VAT cut for the hospitality sector until March, and some changes to the lending schemes for businesses. Meanwhile, news on the Brexit front was more positive despite the Internal Markets Bill. It has been reported that a Brexit deal is in touching distance. There was generally a risk-off tone in the market as COVID cases across Europe continue to soar with Spain and France reporting over 10,000 rolling 7-day averages. Economic data over the past few months have generally pointed to a stronger-than-expected initial rebound in economic activity in the UK, US and the Eurozone. German September IFO survey showed rises in current conditions and expectations, UK GfK consumer confidence measure rose to a six-month high in September and US manufacturing PMI rose. Looking to the week scheduled to see another set of ‘formal’ negotiations between the UK and the EU on the long-run relationship. Some reports this week have pointed to breakthroughs on some key sticking points. However, the situation remains uncertain and the late December deadline for the end of the transition phase

2020-09-29T08:51:02+00:00September 28th, 2020|

Sterling Faces Dual Risk of Brexit and Potential COVID Restrictions

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

2020-09-21T11:53:16+00:00September 21st, 2020|

Brexit UK-EU Trade Talks: How will sterling be affected?

  History and understanding During the Brexit negotiations in 2017, the UK & EU agreed that trade negotiation could only start after the UK's withdrawal because such negotiations could not happen when the UK still had a veto capability in the EU. For this and other reasons, a transition period after Brexit day (31 January 2020) was defined to allow those negotiations.  The transition period started on the 1st of February 2020 under the withdrawal agreement.   The deadline is the 31st December 2020, a deadline which can be extended for two years, although the British government has declared that it will not apply for any such extension. In 2018 the UK conducted 49% of its trade with the EU, 40% with the Rest of World and 11% with countries that have EU trade agreements.   Figure 1: UK % of Total Trade 2018 Source: Department for International Trade / BBC https://www.bbc.co.uk/news/uk-47213842   Potential scenarios There are various types of deal frameworks available in these negotiations, with the UK said to favour a Canada style arrangement called the Comprehensive Economic and Trade Agreement (CETA). CETA provisionally came into force between the EU and Canada in 2017, this is a free-trade agreement removing 98% of the pre-existing tariffs between the two areas. A CETA agreement between the UK and EU would aim to get rid of most, but not all, tariffs between the UK and the EU, this does not cover anything in services, particularly financial services, which is key to negotiations

2020-09-17T15:22:25+00:00September 17th, 2020|

Sterling Slides as Brexit Tension Increases Ahead of Trade Talks

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.

2020-09-07T13:47:23+00:00September 7th, 2020|

Sentiment Concerns Emerge Ahead of Packed US Calendar Including Virtual Jackson Hole

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

2020-08-24T12:00:12+00:00August 24th, 2020|

5 Looming Dilemmas of 2020 & the FX impact

By Jamie Jemmeson ACSI, MSTA & Tyler Betts, FX Risk Manager at Infinity International “You can't connect the dots looking forward; you can only connect them looking backwards. So, you have to trust that the dots will somehow connect in your future.” – Steve Jobs Steve Jobs’ philosophy of trusting that dots will connect may be very difficult to fathom in this current landscape; but who are we to question the man who created the world’s first trillion-dollar company. Infinity International will be providing content to our clients on several relevant topics covering a variety of possible concerns during these unprecedented times. To do this, we are drawing on our own experience, client feedback as well as the input from others in our network. Last month we covered a series on FX hedging and how this could assist your business in managing the current market volatility. This month we are looking at the topics which could impact on currency and potentially drive emotional decision-making surrounding FX hedging. In this series, we will focus on five key looming dilemmas of 2020 and what this may mean for FX. There may only be one or two ‘trend changing’ events in a normal year, that could significantly impact the direction of exchange rates; however, this year we have seen COVID-19 increase volatility with several other events on the horizon. 2020 has been a rocky road to date, but there are five further topics that could further drive market volatility. Each week we will cover

2020-08-21T09:45:21+00:00August 20th, 2020|

Are You Prepared for Brexit Volatility?

We cannot predict the markets, but we can help you navigate them Sterling’s volatility is compounded by three factors, global COVID-19 sentiment, Brexit trade talks and BoE policy. It is worth noting that in the 4 years since the EU referendum we have seen Sterling trade in a large range (circa 36 cents against the US Dollar and 26 cents against the Euro). With the fallout of COVID-19 still unknown, the impacts could be felt harder by some businesses. We have compiled FX forecasts using data taken from over 40 financial institutions in an effort to predict the high, low and mean rates for the next 6 months: covering the phase of negotiations between the UK and EU and the impact of COVID-19. As can be seen, there are large differentials between the high and lows which highlight the potential volatility that could happen during this period as we ride ebbs and flows of progress and setbacks in the forthcoming talks. Download the PDF report for the details: Infinity_FX July Forecasts Are you managing the risk of your FX exposure? 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

2020-08-12T10:15:53+00:00July 24th, 2020|