The currency markets had a quiet time last week, which is hardly surprising as we approach the peak summer holiday period. Ranges continue to get narrower, and volumes continue to decline. There were, however, some interesting developments, not least from the Bank of England. After both the Royal Bank of New Zealand and the Bank of Canada took a more hawkish stance, the bank of England somewhat surprisingly also moved further in that direction. The BoE’s Michel Saunders and Sir Dave Ramsden, typically seen as doves, made speeches referencing the need to tighten policy by curtailing asset purchases soon, making the next Bank of England meeting in a little over three weeks more interesting than it may have been expected to be. However, in his testimonies to Congress, Jerome Powell remained cautious and seemed to have the return to near full employment uppermost in his mind.
Today, most of the remaining pandemic restrictions in England are lifted, but Boris Johnson, who is isolating, as is Rishi Sunak, urged the public to “please be cautious”. Most supermarkets and London Underground are maintaining a requirement to wear masks that should help ally some fears, but hospitalisations will be closely watched. In common with the UK, Europe faces a rapid growth in case numbers, and the main event this week, the monthly European Central Bank will be held against this backdrop. There is little chance of any policy change, and with the European recovery lagging behind the US and the UK, the euro will remain vulnerable as both the US and the UK start looking to tighten policy.
Over the weekend, investor’s concerns over the relaxation of Covid restrictions and rising cases numbers have grown. These worries are capping sterling at the moment, and it has opened around €1.1650. As in recent weeks, the rate of hospitalisations, more than the case count, will be watched for any marked upswing. However, with a reported 500,000 people “pinged,” some concerns are starting to grow over the impact of this on the economy, and these worries may weigh on sterling in particular against the dollar. Apart from Covid reports, there is little on the data docket to concern sterling this week. The only significant figures arrive on Friday when the GfK Consumer Confidence survey, Markit’s Purchasing Manager Indexes, and Retail Sales are released. This morning the BoE’s Jonathan Haskel is giving a speech, and on Thursday, Jim Broadbent will follow suit, and after last week’s hawkish statements, we will be listening to see if they continue with the same rhetoric. If they do so, it will signal that the Old Lady has altered course, and that would encourage some buyers back into sterling.
It is the European Central Bank’s (ECB) turn to take centre stage this week, with its monthly meeting taking place on Thursday. With Covid cases on an upward trajectory again in Europe and with much of the continent still lagging behind the US and the UK in vaccination levels, the euro will stay under pressure as its economic recovery starts to look even more fragile. Despite these worries in the background, the ECB is expected to adopt a slightly more hawkish stance. This data flow begins later this morning with European Construction reports and the monthly report from the Deutsche Bundesbank. Then there is a lull till the ECB meeting on Thursday, followed by the customary press conference from Christine Lagarde. On Friday, Markit will release its Purchasing Managers Indexes for the Eurozone and its constituent countries.
For the first time in a few weeks, the Fed will take a step back this week with no speakers scheduled as they enter the blackout period before the next Federal Open Market Committee meeting. With little on the data front to occupy traders, they will continue to digest the overridingly cautious tone that Fed Chairman Jerome Powell took last week over the threat of inflation. Increasingly the markets are split over whether the Fed is being too slow to react or is right to be cautious. Economists fear that if the Fed tightens too quickly, the economy may tip back into recession. Admittedly, there are worrying signs that this may be happening, and yields in the US Bond market, which many currencies traders follow intensely, are starting to reflect this. The uncertainty surrounding the recovery looks set to continue, but it could be a quiet week as there is little to disturb the summer doldrums that the markets find themselves in. The data week starts with the release of the NAHB Housing Market Index today and tomorrow, June’s Housing Starts and Permits. On Thursday, the weekly Jobless total is released, and we close the week with the Markit Purchasing Manager’s Indexes.
The Swedish krona lost ground last week as the inflation figure came in lower than expected on a Year-On-Year basis. It is trading at the higher end of the narrow range against the euro and sterling, but this is nothing unusual as July is usually a krona negative month. This week is very quiet from a data perspective, with only the Producer Price Index on Thursday carrying any importance.
Some speculation in the financial press about the Norwegian krone and the forthcoming rate hike was the only interesting piece of information last week. This week is looking relatively uneventful with no significant data releases.
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