“I don’t make predictions. I know what I can do, and I try not to think too far ahead.” - Bradley Wiggins Since the delayed Tour De France is taking place we thought it would be appropriate to quote Britain’s first Yellow Jersey winner; 2012, what a great year that was. Fast forward to today, not such a great year, the global economy is still recovering and markets are still split on the direction of this and as a result the residual impact on currency markets. Unlike Sir Bradley, financial institutions are constantly making predictions. 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 forecasts still predict a high degree of uncertainty based on the differential. Download the PDF report for the details: September FX Forecast 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
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.
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 the US Dollar continued to soften as economic data and politics failed to provide a boost. In terms of economic data, US initial jobless claims increased for a second consecutive week possibly a sign that economic growth may be cooling or faltering. Meanwhile, US second-quarter GDP contracted at an annualised rate of 32.9% after a 5.0% decline for the first quarter. This was the sharpest quarterly contraction on record by a substantial margin albeit expected given the crisis. With a unanimous vote, the Fed maintained the Fed Funds rate, in the 0.00-0.25% range, in line with consensus forecasts. Chair Powell stated that the evidence suggests that the pace of economic recovery had slowed since June and the pandemic is a disinflationary shock. He added that there is clearly a risk of a slowdown in the rate of growth and the labour market has a long way to go to recover. US politicians continue to debate whether to approve a fourth fiscal stimulus package as urged by Fed Chair Powell last week. The problem is that Congress is supposed to go into recess on Friday and some of the existing measures have expired. Sterling is on the front foot as data and comments boost the economy. UK mortgage approvals increased sharply to 40,000 for June from 9,300 the previous month. Further evidence from the Nationwide house price index show prices increased by 1.7% following the stamp duty tax cut. Also, the CBI retail sales report surged in July
Last week Sterling manged to reclaim some of the losses of recent weeks as comments from various BoE officials helped taper concerns of the prospect of negative interest rates ahead of the economy preparing to reopen. Today, schools reopen their gates to a limited number of year groups, car showrooms and open-air markets are due to reopen as are non-essential retailers in a couple of weeks’ time. This could give the economy a further boost. However, gains maybe limited as UK-EU trade talks are scheduled. Across the Channel we saw the European Commission (EC) announce a 750-billion-euro ($824 billion) plan to prop up the EU economies hammered by the coronavirus crisis. Under the proposal, the EC would borrow the funds from the market. The EC will disburse two-thirds of this in grants and the rest in loans, with much of the money going to Italy and Spain, the worst affected by the pandemic. In the meantime, the US Dollar was weaker as the “risk on” tone increased as the EC released their stimulus measures and the easing of lockdown. However, US-China geopolitical tensions could have an impact on market sentiment if we see this increase. This week the calendar is packed with both political events and economic data taking centre stage. The UK will be focus on the tone of the trade talk talks surrounding the future relationship between the nation and the EU. These will be led by the UK’s David Frost and the EU’s Michel Barnier, with
GBPUSD continues to move lower as investors were not convinced of the UK laissez-faire approach to Covid 19. Yesterday, sterling was able to temporarily retrace some of its losses follow the UK Gov. update where Sunak pledged a further £350bn to help businesses. However, it nose-dived today to its lowest level since the October 2016 flash crash. Barring that low, GBPUSD is trading at its lowest level since March 1985. Sterling losses were further compounded as cases of Covid 19 grew by circa 35% overnight from 1950 to 2626 and rumours that a London shut down is imminent. The move is in tandem with a strong demand for the global safe haven currency, the US Dollar. The US Dollar index (vs a basket of currencies) reached a 3-year high as the fear of Covid 19 grows. Analyst from Nomura on have stated that they consider that there is "the potential for GBP to reach, what is in our view, it’s Hard Brexit equilibrium of 1.15-1.18.". In the meantime, according to the WSJ, a group of asset managers have told new BoE Gov Bailey that financial markets should close for two weeks. The call was held with senior executives from Blackrock, JP Morgan, Vanguard and Bank of New York Mellon. Sterling continues to be under pressure as the Government measures to combat Covid 19 are consider a light touch in comparison to its European counterparts whilst the prospect of a hard Brexit is being considered. Tonight, the